Mine of information

Materials World magazine
1 Feb 2009

Surveys can help mining companies decide how much to invest, and where. Michael Forrest examines recent results.

The Fraser Institute, Vancouver, Canada, has undertaken a survey of mining companies since 1997. It uses company viewpoints to assess how mineral endowments and public policy factors such as taxation and regulation affect exploration investment. Survey results represent the opinions of executives and exploration managers in mining and mining consulting companies operating globally.

The survey includes data on 68 jurisdictions around the world, on every continent except Antarctica, including sub-national jurisdictions in Canada, Australia, and the USA. Last year (2007-2008), Honduras, Namibia, and Panama were included for the first time. The responses of mining companies are graded according to a number of questions on ‘attractiveness’ of the state or country they operate in.

The policy potential index (PPI) is derived from scores of 0-5, determined by the responding companies on effect of government policies on exploration, including - • uncertainty concerning the administration • interpretation and enforcement of existing regulations • environmental regulations • regulatory duplication and inconsistencies • taxation • uncertainty concerning native land claims and protected areas • infrastructure • socioeconomic agreements • political stability • labour issues • geological database • security. It is based on ranks and normalised to a maximum score of 100. Each jurisdiction is ranked in each policy area based on the percentage of respondents who judge that the policy factor in question ‘encourages investment’.

The highest scoring territory is Quebec in Canada, no doubt helped by its generous reimbursement of exploration dollars and mining-friendly legislation. The next nine territories are Nevada, USA; Finland; Canada’s Alberta and Manitoba; Chile; Utah and Wyoming, both USA; Ireland and Sweden, the latter having a PPI of 75.4.

The penultimate eight least attractive territories are Venezuela, the Philippines, Mongolia, India, Bolivia, Panama and Ecuador. This in part reflects the uncertainty of licences and expropriation as seen by the Chavez regime, and the tax hike by the Mongolian Government. The next least attractive regime is, unsurprisingly, Zimbabwe with a PPI of 2.5, however, a score of zero was achieved by Honduras.

A different take

Over the past 19 years another Canadian company, the Metals Economics Group (MEG), has carried out a survey of exploration expenditure – the Corporate Exploration Strategy Survey (CES) – of the world’s mining companies. This survey expanded to include 1,912 companies in 2008, which is estimated to represent 95% of the world’s exploration budget.

In 2007, for the fourth year running, junior companies accounted for just over 50% of the total spend of US$10.5bln, with major company expenditure bottoming-out at 31%. It was nearly 60% in 2001. Intermediate companies have spent around 15% during the past decade. The increasing junior share can be compared with equity fund raising, where exploration accounts for about 40% of the money raised.

Over the past five years, minesite exploration has remained constant at around 20% of the world budget. Minesite is all exploration in and around an existing mine, including satellite orebodies. Late stage exploration (defined as upgrading a previously identified orebody) takes the largest share at 41% and has been growing over the past five years. This reflects the increasing costs of mining and, in particular, drilling which is the main component in late-stage exploration. Grassroots exploration accounted for 39% of the budget, a value that has declined from nearly 49% in 2003. Grassroots includes all types of expenditure from geochemical analysis to airborne geophysics and some drilling.

Last year’s survey found that US$14.4bln (100%) was set aside for non-ferrous minerals exploration including uranium, an increase of US$3.9bln or 27% over the 2007 total. The 2008 figure is the sixth consecutive increase in expenditure since the bottom of the cycle in 2002 when the budget was estimated at US$2.6bln. This is the second year that uranium exploration has been included in the survey and MEG puts a value of US$1.5bln for 2008.

The MEG survey is marketed in two stages, with the 2008 values being released end-November with minimum information above the estimated total spend. This year the total planned value of US$14.4 bln is likely to be reduced as the funding forexploration was lowered in the last quarter of 2008 as credit for mining finance fell.

Further information: Metals Economics Group

The Fraser Institute