Recession fears to dampen exploration drive

S&P Global is tipping a drop in exploration investment next year as inflation, geopolitical instability and fears of recession bite. And reluctance to venture on new ground brings concerns for the chances of new discoveries required to meet growing metals needs in the energy transition. "With the increasing uncertainty in the global marketplace, budgeting will continue to focus on exploration at mine sites and advanced projects — a worrisome trend we have seen for well over a decade," principal analyst Kevin Murphy said. "The reduced focus on grassroots projects has resulted in a notable decline in new major discoveries. "The lack of early-stage exploration, combined with major companies rationalising their project portfolios since 2012, has caused significant thinning of project pipelines for most commodities. "With the medium-term outlook for many industrial commodities foreseeing increasing deficits as the energy transition movement accelerates, we have concerns regarding the outlook for supply of key metals." Metals prices surged in late 2020, spurring increased financing activity. Mr Murphy said this encouraged the industry to allocate more for global non-ferrous exploration year over year, with budgets increasing 34 per cent to $11.20 billion. "Macroeconomic conditions continued to improve through most of 2021, resulting in the companies covered in our study spending about 10 per cent more than they had originally budgeted for the year," he said. "This optimism trickled over into 2022, with the global budget increasing a further 16 per cent to $13.0 billion. "While the 2022 total is an almost 10-year high, it is important to maintain a historical perspective. "The last time metal prices performed as well as they did from mid-2020 through the end of 2021 was back in 2011-12; exploration budgets in 2012 totaled over $20.5 billion, or 58 per cent higher than in 2022." Mr Murphy said global inflation, geopolitical instability and fears of recession were taking their toll as 2023 spproached. "Metal prices have fallen off their highs and markets have trended downward. "This has resulted in investors turning away from the mining sector: financing raised by junior and intermediate explorers totaled $8.4 billion through August, down significantly from the $14.6 billion raised in the same period of 2021. "Should this trend continue through the remainder of 2022 and into the first few months of 2023, we expect a 10 per cent -20 per cent decrease in the global exploration budget for 2023." Gold would be hard hit due to a large gold-focused junior sector having difficulty securing funds for its programs, he said. Interest in energy transition metals, however, should support budgets for copper, nickel and lithium, although decreases for copper and nickel are expected nevertheless. Mr Murphy's analysis was published as part of S&P Global's 2023 Metals and Mining Industry Outlook 'The Big Picture'.

Recession fears to dampen exploration drive

Industry Queensland

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