Lower exploration spending--another response to the end of the commodity price boom.


My previous blog, which you can read here (http://www.wider.unu.edu/node/103925), commented on the manner in which mining companies had been able to respond to the recent decline in metals prices by significantly reducing their costs of production. In fact, this response arose partly from an exogenous event (lower energy prices), partly from an automatic stabiliser effect (lower royalty payments as production amounts and/or values were reduced) and partly from explicit action (reduction of labour forces and labour costs). The analysis was based on the very helpful materials presented by the ICMM in their recently published 3rd edition The Role of Mining in National Economies (https://www.icmm.com/website/publications/pdfs/society-and-the-economy/161026_icmm_romine_3rd-edition.pdf) (hereafter RoMiNE3). This blog looks at another explicit action that was taken by most mining companies, both large and small, which is also analysed in RoMiNE3--the reduction of spending on exploration and development.

A slow response followed by a major decline

Figure 1 below presents data for the 25 companies that were the largest spenders on exploration, research and development in 2011, and for 1,247 other companies for which the data are available. The analysis in RoMiNE3 was able to draw on the detailed company-by-company data made available by SNL Metal Economics () [1] (#[1] down). It can be seen from those data that the exploration spend was initially slow to respond to the decline in metal prices from 2011/12. In fact, the total of such spending by the 1,270 companies shown in the figure actually rose to US$17.85 billion in 2012 as against US$15.16 billion in 2011; an increase of almost 18%.

However, since 2012 there has been a major decline, with the spending of the top 25 companies falling by almost half between 2012-15; a fall from US$11.98 billion to only US$6.4 billion. There was a similar decline in the spend of the smaller companies; a decline of 45%. Taken together the two classes of companies took their exploration spending down by over US$8 billion over that three-year period.


But how has this situation evolved subsequent to 2016? A more recent report published by S&P Global Market Intelligence provides some useful answers. () [3] (#[3] down) First, their data which is based on the exploration budgets of 1,580 mining companies operating in non-ferrous metals, shows a further decline (in budgets not necessarily actual spending) in...

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