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Miners still stuck in low gear

Investment in exploration has remained relatively stagnant in recent years, prompting the Federal Government to consider providing initiatives to kick-start activity in the industry, as Jim Hawtin and David Gibson report.

 

MINING companies in Western Australia last year each spent an average of $1.1 million exploring for minerals, both in and outside of Australia.

Although a far cry from peak levels of exploration spend six or seven years ago, the average Western Australian company spend was up 5.2 per cent, or $54,000, on 2002 levels, according to figures supplied by West Perth-based resource intelligence group, Intierra.

Overall, total exploration expenditure by companies in WA was relatively flat, rising from just $140 million in 2002 to $147.3 million in 2003.

According to the Australian Bureau of Statistics, total exploration in WA was up by $13.5 million.

The slight increases largely resulted from a $15 million spike in WA company exploration figures for the September 2003 quarter, during which equity markets strengthened and world commodity prices rose.

Local nickel explorer Western Areas topped the list of WA-based explorers, more than doubling its exploration expenditure from about $3 million in 2002 to $7.27 million last year.

Despite this, Western Areas – which primarily targeted the Western Australian Forrestania nickel province hoping to bring on two new nickel mines later this year – was at odds with most other top 10 spending WA explorers which generally spent their cash overseas.

Western Areas managing director Julian Hanna said raising money had not been difficult, given the company’s positive drill results – particularly at its Daybreak and Flying Fox projects – combined with strong investor sentiment towards nickel stocks.

Mr Hanna said about 80 per cent of equity raised by Western Areas was spent on exploration.

But he added that the small team, consisting of five staff and as many directors, had worked hard, with as many as five diamond drill rigs operating around the clock for the past six months at Forrestania.

Despite this, Mr Hanna conceded a relatively smooth run at Forrestania, where it had not been slowed by the land access issues that led other big spending explorers to look outside Australia.

Not far behind Western Areas, Sipa Resources International spent about $7.1 million exploring WA and other parts of Australia.

Sipa increased its exploration expenditure in 2003 by about 10 per cent.

WA explorer Dragon Mining was next, dramatically ramping up exploration last year to spend $6 million – almost six times its 2002 spend.

Dragon, a WA-based explorer of 15 years, recently moved its operations offshore to Sweden and Finland following a change in management.

Dragon CEO James Searle said despite Australia being an attractive location to explore and invest in, it was also hotly contested.

He said the opportunity overseas came at the right time, with modern business systems enabling a large exploration program to be run from a small base in Perth.

Dragon has five directors and two geologists based locally, with almost 90 per cent of funds raised going into exploration.

Despite foreign exploration success – Dragon is preparing to bring at least one mine into production this year – Mr Searle said Australian investors were parochial, a reason why Dragon, like a number of other junior WA explorers, had become listed on a secondary exchange.

“It is not very costly [a Frankfurt Exchange listing] and some days we would approach [investment levels] similar to what we get in Australia,” he said.

Equinox Resources – which topped 2002 exploration spending with $16 million – ranked fourth in 2003 despite reducing expenditure by more than $10 million.

The company holds ground in Zambia, Peru, Sweden and WA.

Equinox managing director Craig Williams said the drop was the result of an intensive feasibility and drilling program undertaken at the Lumwana copper/cobalt project in Zambia.

Mr Williams said Equinox would expect an increase in exploration expenditure this year following a successful listing on the Toronto Stock Exchange

Kimberley Diamonds, which almost doubled exploration expenditure in 2002, is now focusing on mine development at its Ellendale tenements in WA’s far north. The miner says less will be spent on exploration going forward as it prepares to spin-off tenements into another company.

Kimberley managing director Peter Danchin said that while a reasonable amount was spent on exploration most funds went towards mine development.

Only a small percentage was allocated to the corporate structure, despite the company having six directors.

Mr Danchin said it was difficult to compare exploration companies because operating locations were more prospective for different types of minerals.

Base and precious metal explorers, Centamin and Goldstream, polled fifth and sixth, each spending just more than $4 million last year. Both are exploring overseas.

Despite recognising WA’s geology and supporting infrastructure, both companies said, certain countries, despite the risks, had better fiscal and regulatory attractions such as significant tax breaks and agreeable mining codes.

A Goldstream spokesman said it was important to note that some expenditure was on behalf of another company via joint venture.

 

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