In 2011, B.C.’s mining companies spent a record-breaking $462 million on exploration. Despite tight capital markets and undervalued mining companies in 2012, the sector followed 2011’s total by sinking $680 million into B.C.’s mining exploration.
But industry experts caution that the 47% increase masks the plight of many junior B.C. miners.
Bruce Madu, director of the BC Mineral Development Office, said two factors drove up the figures: an unusually large amount of coal exploration and major exploration budgets at a handful of projects.
Madu said high metallurgical coal prices two or three years ago spurred the uptick in coal spending in 2012 to a “very high” $155 million – 22% of the total exploration spending in the province.
“There’s probably a one-year lag from the very high coal prices to a really big bump in the exploration spending.”
Madu added that there was significant investment in a few key metal projects. B.C.’s mines ministry said key projects driving the 2012 spending include:
•New Gold Inc.’s (TSX:NGD) Blackwater;
•Pretium Resources Inc.’s (TSX:PVG) Brucejack;
•Teck Resources Ltd.’s (TSX: TCK.A, TCK.B) and NovaGold Resources Inc.’s (TSX: NG) Galore Creek; and
•Seabridge Gold’s (TSX: SEA) KSM.
Madu said that the combination of the record coal exploration investment and “very, very high budgets” at a few projects has resulted in “anomalous” exploration investment totals.
“If you were able to strip those numbers away, you’d find that the junior sector probably was depressed.”
Madu added that there’s “no doubt” that the record-breaking investment figure is masking junior explorers’ struggles in 2012.
“We saw trimming of budgets and cancelling of programs in 2012 from the junior sector and even mid-sized companies felt the pinch from the tight capital markets,” he said.
Gavin Dirom, president and CEO of the Association for Mineral Exploration BC, said that the 2012 investment total is “interesting” and “very significant.”
“But the challenge is the breakdown between projects that are well known or well advanced versus the greenfield or grassroots exploration,” he said, noting that a limited portion of the expenditures was allocated to the latter.
“That’s a challenge because you need new discoveries coming along to sustain the industry.
“Although it’s great to see this mature stage of the exploration cycle happen in B.C., we’re encouraging investment back into grassroots exploration, into geoscience, into the type of projects that will hopefully enable a discovery to be found.”
Dirom said that globally, a lot of capital was “sitting on the sidelines” last year, or being moved into sectors other than mining and exploration.
But he said the industry is optimistic that will shift this year, due to some recovery in the U.S. economy and continuing growth in China and India. “We’re optimistic that 2013 is the return to base metals, precious metals, the basic commodities again.”
Dirom said it’s hard to predict B.C.’s exploration expenditure levels, but cautioned that it would be hard for the province to break this year’s record.
“To go record over record is a bit unrealistic,” he said. “But to have strong numbers is reasonable, whatever that is – whether it’s in the $500 million range or whatever. That wouldn’t be unreasonable to expect.”
