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SECTOR: MINERAL EXPLORATION
Mineral
Exploration trends in Australia, a wake up call
We comment on the major findings of a 124
page report by the Australian Bureau of Agricultural and Resource
Economics
SkilledGeoscience
12 March 2003
The
decline in mineral exploration activity has been so dramatic that
the economic consequences will be more severe than most Australians
realize. The trickle down effect has not yet hit home, but when
it does, it will be devastating to the Australian economy. Expenditure
on mineral exploration (excluding oil) has hit a 25 year low, declining
nearly 50% over the last five years to A$ 623 million. However,
because mine output has not yet fallen as sharply, the economic
consequences of reduced exploration have largely gone unnoticed.
Potentially 30% of all exports are affected or 9% of Australia's
GDP. This should be a wake up call.
The
point is best illustrated by gold. A 60% drop in gold exploration
over the last 5 years (1997- 2002) has so far only cut production
by 14%, so the worst is yet to come for an industry that exports
close to A$ 4 billion. Obviously new discoveries are needed to replace
the mines currently operating.
Until
the real value of mineral exports also drop dramatically, when current
ore reserves begin to run out, the effect will not be apparent.
The graph below illustrates that to so far there has been only a
small drop in exports. This explains the complacency of government
and industry. However, when the production decline does become obvious,
it will be too late to fix the problem, because the lag time between
discovery and production is commonly about eight years and often
a discovery is preceded by another eight years of exploration. So
all this requires long term strategic planning.
The
reasons for declining exploration are partly reduced demand for
minerals by the OECD countries, and Australia alone can do little
about that. Similarly, about the global merger and downsizing mania
of mineral companies. But the most damming statistic is the local
issue of land access, which could be improved. Skilled Geoscience
was shocked to discover that out of nearly 6000 mineral exploration
license application lodged over the last 10 years, only 1000 have
been granted. The situation is worse for mining titles; 7000 applications
and just over 300 granted. Such inactivity translates into a great
lost opportunity for jobs, new discoveries and ultimately must result
in the failure of the industry to mine and export. The gaping and
growing gap between the number of pending titles and those granted
should be an acute embarrassment for government, industry and land
councils.
Regrettable,
the public at large does not understand the pragmatic working cycle
of the exploration business. Critically, how this cycle relies on
building confidence in new ideas, testing these ideas and rapid
turnover of projects to prosper. Such lack of understanding results
in lost opportunities for explorers and disappointment for other
stake holders (e.g. Investors and indigenous landowners). If it
takes many years and much cost to test a new idea or area, often
the opportunity may be lost for ever, because people move on and
investors look elsewhere. We often hear from companies that wish
to undertake a wildcat play in a new area. Invariably they have
enthusiasm and the relevant skills, but little knowledge about the
area because they simply cannot do basic reconnaissance. Their backers
see mainly the risk and need information to boost their confidence.
Under the current native title process it can be very expensive
in both time and money to gain access for even the most basic work
to take the first steps to build confidence in a new idea or area.
This would generally involve a short field visit for mapping and
sampling, or some geophysics. In most cases such work can be managed
to have little or no impact on local residents, sacred sites or
the environment.
The ABARE report highlights, historically, the important role of
small companies in mineral exploration. However, the present reality
is that under the existing taxation regime operating in Australia
and the native title process, small companies are actually disadvantaged.
Most simply do not have a cashflow against which they can deduct
expenditure, and worse, only larger companies have the resources
to effectively manage the demands made by the Native title bureaucracy.
Where goodwill and mutual understanding prevail all stakeholders
benefit by more flexible, more rapid and staged access arrangements.
Acknowledgment
This article was written by Michael Raetz, part time editor of the
Skilled Journal. He is a geologist of some 30 years exploration
and mining experience. This article draws on data presented in the
ABARE review of Mineral Exploration in Australia published in December
2002. All the graphs on this page come from that report. The editor
believes this is an important document that deserves wider debate.
The Editor invites discussion about this article or any other
matter. For discussion please use the forum on www.skilledgeoscience.com
New articles for publication in the Skilled Journal are also invited
Editor@skilledgeoscience.com
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