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S&P Global's market intelligence arm asserted in March that high metal prices would mean a strong resurgence of exploration in 2021.

Commodity price variations since January 2020

As the pandemic hit in March 2020, exploration teams around the world were hit by travel restrictions just like most other industries. This led S&P Global Market Intelligence to estimate internally that the combined total of junior and major exploration budgets would be down by about a third compared to 2019.

However, when the figures finally came in S&P Global found that budgets for non-ferrous exploration fell only 11%, giving a combined total of US$8.7bn, against US$9.8bn in 2019. The better-than-expected result was largely because base metal prices began trending upwards after 1Q20 and many governments declared mining an essential industry, S&P Global said in a report published in March 2021.

That said, these better numbers were due mainly to budget increases for gold and silver exploration, which have traditionally represented the majority of global exploration spending – gold alone accounted for 52% of spending in 2020. Also, gold accounted for a record 78% of holes drilled globally in 2020, up from 69% in 2019.

Cuts in copper exploration, on the other hand, were particularly hefty and accounted for 58.6% of the overall budget decrease across all metals. In a release announcing the 2020 exploration report, S&P Global Market Intelligence metals and mining research director Mark Ferguson highlighted pandemic effects in Peru and Chile – with crews prevented from going on-site – as the main reason for the effect on copper.

(This graph excludes companies that had not yet published figures, and companies spending less than $100,000/year)

Furthermore, it was Canada, the U.S., Europe and Asia that propped up gold exploration, which accounts for the lion’s share of budgets in those countries. Thus, even factoring in the hugely reduced budgets for copper and other metals, those business lines are so small (relatively) that total budgets in Canada and the U.S. fell only 1.5%.

It was a very different story in Latin America, where total budgets were down 21% (or US$556mn). The copper industry of Chile alone accounted for a large proportion of that decrease, with budgets for that niche down US$196mn compared to 2019 (a 30% year to year cut).

The emphasis on gold in 2020 was helped by the economic uncertainty brought on by the pandemic, with the market migrating to the most stable investment option in the first half of the year.

In Latin America gold and copper were equally attractive in 2019, each with a 38% share of the region’s total exploration budget, but in 2020 the above effect led to gold rising to 42% and copper falling to 36%, according to Paul Manalo, Metals & Mining Research Analyst with S&P Global Market Intelligence.

In Latin America total budgets for 2020 were down 21% and the copper industry of Chile alone accounted for a large proportion, with budgets for that niche down 30% compared to 2019.

However, as governments took steps to reactivate or reopen their economies the gold price started to fall again and the emphasis switched to industry-orientated metals. Iron ore and copper were standout performers in 2020, with prices ending the year up 99% and 68%, respectively, from their first-quarter lows, S&P Global said in its release.

At the same time, the predominance of «working from home» had put the spotlight on innovation, which often goes hand in hand with the conversation about green alternatives, and attention turned to copper and lithium as key components of these trends.

The copper price in particular was helped by experts warning of deficits with respect to the requirements for innovation over the next few years.


Source: S&P Global Market Intelligence ("Latin America Regional" refers to budget allocations that show intent to target the region, but without a specific location chosen yet)

In February 2011 – under similar circumstances – the LME cash price for copper passed the US$10,000/t mark for the first time ever and stayed there for a week. Today some analysts are predicting a similar outcome as the price inches up every week.

In a recent poll of 25 institutions by FocusEconomics, Goldman Sachs and Singapore’s United Overseas Bank said they expect the price to hit US$10,000 once again in 4Q21, while ABN Amro, Citi and ANZ expect it to persist above US$9,000 in the last quarter. However, the spread of responses was quite severe, and the final consensus for Q4 was an average of US$8,340. On April 26 the LME price was US$9,758/t, a level last seen in August 2011.

Does this mean exploration firms are likely to pivot from gold to copper? S&P Global believes so.

«In 2021, we do expect a significant shift back towards copper in Latin America. This will be partly due to a recovery in budgets from the major copper producers (which saw decreases in 2020) and a bump in copper exploration due to the current high prices,» Manalo told Chilexplore Group.

Overall, S&P Global doubts that base metal prices will drop any time soon, which should mean improved exploration figures in 2021 compared to 2020.

If metal prices remain elevated over the next several months, it is likely that the exploration budget recovery in 2021 will also be strong, possibly in the 15%-20% range, the firm said in its March report.

There are some commodities that are expected to be in surplus this year, most notably zinc and nickel, but significant price decreases are not expected, Manalo added.

While pandemic rules impeded on-site work during 1H20, companies more than made up for it in the second half, and globally the number of holes drilled was up 5.3% compared to 2019. Again, this was driven mainly by gold, with teams not only making up for lost time but also possibly keen to do as much as they could before lockdown measures became more severe once again.

Although the number of holes drilled increased, the number of projects remained flat, showing that firms remained fixated with exploring active sites rather than investing in greenfield projects.

Still, the lack of change in project numbers was curious considering that globally there was a 3% increase in the number of active exploration firms last year.

In Latin America the number of firms increased to a slightly lesser extent, by 2.4% (from 337 to 345 firms), but Manalo expects the number of active explorers to increase again this year, at similar or slightly slower rates than in 2020.

In Latin America, grassroots exploration accounted for 27% of the budget total in 2020, down a little from 28% in 2019. «These early-stage budgets should recover somewhat in 2021 but will not upend the industry-wide trend away from earlier stages of exploration,» Manalo told Chilexplore Group.

In fact, even if metal prices continue rising, S&P Global believes it will be a few years before the industry ventures back into greenfield exploration, and only with the help of government incentive programs.

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