Resources companies are continuing to invest more in exploring for minerals but much of the additional spend is being eaten up by cost increases, rather than new or expanded exploration.
Australian Bureau of Statistics data shows the number of metres drilled in exploration Australia-wide will pass 11,000 kilometres by the end of this financial year – calculated by assuming activity remains at levels similar to the first three quarters of the year.
It represents a 15 per cent increase in activity on the previous year and matches the growth during 2009-10.
But the amount spent on exploration has increased at a rate almost double that – on average 30 per cent a year.
Miners invested $2.9 billion in exploration last year, with $1.6 billion alone being spent in Western Australia.
If investment for the final quarter is in line with the first three quarters, $2 billion will be spent on WA exploration in 2011-12, accounting for 52 per cent of the estimated $3.9 billion country-wide total.
Association of Mining and Exploration Companies chief executive Simon Bennison said he expected drilling costs to only increase with the introduction of the carbon tax next month.
“Increased exploration expenditure can be seen as a result of the rising costs of fuel and rising costs for employees undertaking work,” Mr Bennison said.
“As of July 1, the cost of diesel fuel will rise by 6.21 cents per litre, which will have a significant impact on mineral exploration with diesel fuel being a considerable input cost to drilling operations.”
Meanwhile, the level of greenfield exploration remains below expectations.
The ABS figures data show investment in further exploring existing deposits has grown while funding for new discoveries has dropped off.
Existing deposit exploration is anticipated to make up 70 per cent of total exploration expenditure this financial year.
It’s led the federal government to introduce a national exploration strategy to encourage investment in greenfields exploration.
Mr Bennison said the decline in greenfields projects had been occurring for the past decade; since 2003 the proportion of exploration for new deposits had decreased from 45 per cent to now just over 30 per cent.
“If this decline is allowed to continue unabated it will threaten the long-term growth of Australia’s mining industry as the potential to discover the next operational mine decreases,” Mr Bennison told WA Business News.
That would, in turn, affect the long-term economic prosperity of Australia.
Investment in petroleum exploration has continued to retract since the GFC; it amounted to $2.4 billion last financial year but is not expected to go over $2 billion this year.
Attention has remained on exploration for copper as its high prices are now almost
double the cash costs of production in some cases.
The price of copper reached $US7,500 per tonne in May, almost on par with pre-GFC prices.
Gold exploration is also continuing to increase amid high prices.
Miners have not shied away from investing in iron ore exploration despite ore prices remaining flat at around $US136/tonne.
Stockbroker Patersons says the commitment to iron ore exploration was driven by unprecedented industrialisation in China and India, which had been met by lagging supply.
