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02-07-2015, 05:23 PM
Mining exploration sector in crisis, warns Boston Consulting
THE AUSTRALIAN JULY 02, 2015 12:00AM
Matt Chambers
Resources Reporter
Melbourne
Boston Consulting Group says the mining exploration sector is in crisis.
It claims that new discoveries have dwindled despite boomtime spending surges, and warns that failure to focus on looking for new deposits amid the current productivity drives is a risky proposition.
As bigger miners pull back on exploration to focus on productivity and dividends, the challenges for junior explorers continue to grow, with the number of ASX-listed companies filing reports continuing to slide.
Advisory firm BDO estimates that one in five Australian juniors are zombie companies conducting no mining exploration as they struggle to stay afloat.
BCG says between 2010 and 2013 the number of annual discoveries outside iron ore and coal more than halved, from 130 to 60, while giant discoveries have dropped from eight in 2010 to just one in 2013. This was despite global exploration expenditure increasing to record levels of about $US22 billion in 2012 during the boom. Since then exploration budgets have halved.
“Since the end of the resources boom, most mining companies have focused on productivity and cut back on exploration spend, which has exacerbated the depletion of resources and reserves,” Perth-based BCG partner Alexander Koch said.
“Risk-averse companies often forgo greenfield exploration (searching for minerals away from existing mines) in favour of brownfield exploration (near mines), but in doing so they incur more risk than if they had balanced the two types of exploration in a portfolio approach.”
BCG, which consulted some of the world’s top exploration executives — including former Newcrest exploration manager Dan Wood, who discovered the big Cadia gold and copper deposits in NSW; Jim Lalor, who discovered Olympic Dam coper and uranium mine in South Australia for WMC; and Douglas Kirwin, who helped discover the Oyu Tolgoi copper and gold mine in Mongolia — said the exploration crisis was not due to geology, industry economics or other external forces.
“Whether you’re a junior, a mid-tier or a major, the big issue is the quality of leadership,” said Graham Brown, a former exploration chief at Anglo American.
“If as a leader you can’t convince your board that you need a certain amount of time and a certain amount of money to do what you have been asked to do, then it’s your problem.”
BDO’s quarterly report on the cash position of junior ASX explorers said the sector had been starved of capital, with one in five companies effectively having ceased operation by spending less than $10,000 on exploration and more than 40 per cent holding cash reserves sufficient to fund just one or two quarters of operating expenditure.
“The signs are worrying for the junior explorers,” BDO corporate finance partner Dan Taylor said. The number of companies reporting since BDO began analysing the sector’s quarterly cash expenditure in June 2013 had fallen to its lowest level.
Only 793 companies lodged reports in the March quarter, down from 814 in December and 861 when the survey started.
“The challenge for many companies at the moment is to try to ride out the next few years until prices become more attractive,” Mr Taylor said.
THE AUSTRALIAN JULY 02, 2015 12:00AM
Matt Chambers
Resources Reporter
Melbourne
Boston Consulting Group says the mining exploration sector is in crisis.
It claims that new discoveries have dwindled despite boomtime spending surges, and warns that failure to focus on looking for new deposits amid the current productivity drives is a risky proposition.
As bigger miners pull back on exploration to focus on productivity and dividends, the challenges for junior explorers continue to grow, with the number of ASX-listed companies filing reports continuing to slide.
Advisory firm BDO estimates that one in five Australian juniors are zombie companies conducting no mining exploration as they struggle to stay afloat.
BCG says between 2010 and 2013 the number of annual discoveries outside iron ore and coal more than halved, from 130 to 60, while giant discoveries have dropped from eight in 2010 to just one in 2013. This was despite global exploration expenditure increasing to record levels of about $US22 billion in 2012 during the boom. Since then exploration budgets have halved.
“Since the end of the resources boom, most mining companies have focused on productivity and cut back on exploration spend, which has exacerbated the depletion of resources and reserves,” Perth-based BCG partner Alexander Koch said.
“Risk-averse companies often forgo greenfield exploration (searching for minerals away from existing mines) in favour of brownfield exploration (near mines), but in doing so they incur more risk than if they had balanced the two types of exploration in a portfolio approach.”
BCG, which consulted some of the world’s top exploration executives — including former Newcrest exploration manager Dan Wood, who discovered the big Cadia gold and copper deposits in NSW; Jim Lalor, who discovered Olympic Dam coper and uranium mine in South Australia for WMC; and Douglas Kirwin, who helped discover the Oyu Tolgoi copper and gold mine in Mongolia — said the exploration crisis was not due to geology, industry economics or other external forces.
“Whether you’re a junior, a mid-tier or a major, the big issue is the quality of leadership,” said Graham Brown, a former exploration chief at Anglo American.
“If as a leader you can’t convince your board that you need a certain amount of time and a certain amount of money to do what you have been asked to do, then it’s your problem.”
BDO’s quarterly report on the cash position of junior ASX explorers said the sector had been starved of capital, with one in five companies effectively having ceased operation by spending less than $10,000 on exploration and more than 40 per cent holding cash reserves sufficient to fund just one or two quarters of operating expenditure.
“The signs are worrying for the junior explorers,” BDO corporate finance partner Dan Taylor said. The number of companies reporting since BDO began analysing the sector’s quarterly cash expenditure in June 2013 had fallen to its lowest level.
Only 793 companies lodged reports in the March quarter, down from 814 in December and 861 when the survey started.
“The challenge for many companies at the moment is to try to ride out the next few years until prices become more attractive,” Mr Taylor said.