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Exploration finally on the up

A glimmer of light is emerging at the end of WA’s exploration tunnel, following the first major downturn in more than ten years.

While annual exploration expenditure in Australia fell by 17 per cent in 1998/99 to $1.7 billion, WA was harder hit registering $523 million, down by 21 per cent on 1997/98 level of $660 million.

In previous years the WA average was $490 million.

In 2000, aggregate exploration expenditure in Australia is expected to remain subdued.

According to the ABARE’s Outlook 2000 for minerals and energy, key factors in the slump include current and expected minerals prices, exploration and mining technology, minerals prospectivity and a range of government policies which affect the profitability of exploration and mining.

A review of trends in activity indicate that expenditure will continue to occur in an ‘episodic’ manner. Consequently, an increase in commodity prices or discovery of a new prospective region often results in an exploration bandwagon effect, which ends with either oversupply or a downfall.

In this context, positive signs have been seen in commodity prices.

Despite the current downturn, recoveries in petroleum and base metal prices through 1999 and ABARE projection of increases in prices for these commodities over the next two to three years are reasonably positive for Australia’s shorter term exploration outlook.

The average price of crude oil is forecast to increase by 50 per cent in 1999/2000. Early indicators are that petroleum exploration in some key regions has begun to pick up.

The ABARE report says, on the basis of recent and expected increases in base metal prices, exploration for base metal could soon follow suit.

Average base metals prices fell by 13 per cent in 1998/99 but are forecast to increase by 12 per cent in 1999/2000. Over the medium term, real base metal prices are expected remain above their 1997/98 levels until 2004/05.

Projected gold prices are less positive for gold exploration. However, offsetting this to a degree is a clear recent trend of increasing productivity in gold exploration and mining.

In addition, there appears to be increased confidence that the destabilising threat of massive central bank gold sales in the medium term has been removed.

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