Ending years of cuts, miners are exploring again - cautiously

Major Drilling International

01/02/2017 21:00

* Mining recovery re-ignites exploration work 
    * Lack of M&A opportunities also a factor 
    * Hi-tech tools help to unearth next mother lode 
 
    By James Regan 
    SYDNEY, Feb 2 (Reuters) - After years of cutting budgets and 
squeezing existing mines, global mining giants are again 
scouting for new deposits: industry analysts say 2017 will see 
the first increase in spending on exploration in five years. 
    Exploration spending came under pressure when commodity 
prices tumbled and investors pushed miners to be less 
profligate, especially on large new projects and in untested 
locations.  
    Spending last year was down two-thirds from a 2012 peak of 
$21.5 billion, according to S&P Global Market Intelligence. 
    But mining companies say that is now changing as supply 
concerns return, market prices recover and deals for top-tier, 
low-risk mines in key commodities remain elusive. 
    S&P forecasts more will be spent this year in safe-bet 
countries such as the United States, Canada and Australia, where 
operating risks are lower and technology is cutting-edge. 
    The focus is on commodities like copper, which could slip 
into deficit, and on technology - to allow mining companies to 
find more faster, and with fewer people. 
    "At quiet periods in the cycle, we will typically press out 
into non-OECD countries," said Stephen McIntosh, group executive 
for growth and innovation at Rio Tinto  RIO.AX   RIO.L , 
referring to the 35-member Organisation for Economic Cooperation 
and Development. "But at the moment, we're focusing on the OECD, 
predominately the Americas, and predominately for copper." 
    Rio Tinto intends to spend $180-$200 million on exploration 
this year, and BHP Billiton  BLT.L   BHP.AX  is boosting its 
exploration spending by about a third after four years in 
decline, mainly to find more oil and copper. 
    "We're looking for copper, zinc and nickel. We aren't 
against making acquisitions, but the assets that we're looking 
for just aren't there," said Andrew Michelmore, managing 
director of Hong Kong-listed MMG Ltd  1208.HK . "That leaves 
exploration." 
    Overall, exploration spending in Australia alone - the 
second-highest behind Canada - rose to A$113.8 million ($86.2 
million) in the third quarter of 2016 from A$87.1 million in the 
first three months. 
    Drilling on new ground, a key indicator of exploration 
activity, increased 75 percent in last year's third quarter from 
the second quarter, according to Australia's Association of 
Mining and Exploration Companies. 
     
    CHEAPER, FASTER, DEEPER 
    Key, however, is the need to improve the hit rate, after 
spending ballooned during the boom but failed to translate into 
more discoveries. Rio Tinto reckons a Tier-1 new, or greenfield, 
copper discovery is made on average every four years. 
    Innovations such as speedier drilling analysis and on-site 
testing can reduce costs, and improved detection can help find 
ever deeper deposits. Rio Tinto has its own technology that 
identifies which rocks contain metals worth digging for, while 
others use underground drones, 3D mapping and robots to do much 
of the grunt work. 
    Companies that supply exploration equipment - from earth 
movers and drills to high-tech mapping services - are gearing up 
for more business. 
    "We've done a lot more training, more hiring, getting 
prepared for an upturn," said Denis Larocque, President of 
Canada-based Major Drilling Inc  MDI.TO , the world's 
second-biggest minerals drilling company. 
    UK-based Adrok Ltd, in which Teck Resources Ltd  TECKb.TO  
owns a minority stake, expects to book the most orders in years 
from mining majors and explorers, thanks to its atomic 
dielectric resonance technology, which uses electromagnetic 
waves to map layers and types of underground materials.  
    But the pressure is still on when it comes to costs. 
    Commodity prices have risen enough to spur greater 
investment in exploration, but no one is disregarding costs yet, 
says Adrok Chief Operating Officer Alan Goodwin. "There's more 
appetite for them to try new things, whereas before they were 
shelving a lot of projects." 
    ($1 = 1.3203 Australian dollars) 
 
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Mining exploration expenditure    http://tmsnrt.rs/2jeN36l 
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 (Reporting by James Regan; Additional reporting by Rod Nickel 
in WINNIPEG, Nicole Mordant in VANCOUVER and Barbara Lewis in 
LONDON; Editing by Clara Ferreira Marques and Ian Geoghegan) 
 ((jim.regan@thomsonreuters.com; +612 9373-1814; Reuters 
Messaging: jim.regan.reuters.com@reuters.net)) 
 
Keywords: MINING EXPLORATION/