• Exploration spending on resource projects is reaching 8-year highs, fueled by investment and new discoveries
  • “There was a lot of interest in the exploration space, which was fueled by fantastic discoveries” – Gavin Wendt, MineLife
  • Gold topped the list of exploration spending, accounting for more than half of the $ 718 million for the December quarter

ASX and Australian natural resources companies increased their exploration spending to an eight-year high of $ 718.4 million in December 2020 as COVID-related travel restrictions encouraged companies to develop more home-grown projects.

Total exploration spending in the December quarter is $ 793 million, its highest level since March 2013, and increased 2.5 percent to $ 700.6 million in the September quarter, the Australian Bureau of Statistics said report this week.

“Over the past year some Australian extractive companies have returned to Australia due to travel restrictions due to COVID-19 and many see this as an opportunity to develop projects here,” said Rob Murdoch, principal advisor at Austex resource opportunities.

Murdoch’s Company tracks the exploration expenditures of the ASX listed resource companies listed on their reports on Appendix 5B and which they are required to file quarterly throughout their fiscal year.

The report in Appendix 5B summarizes the amount of expenditures each ASX resource company had in a quarter on exploration, development and mining activities.

Murdoch noted that the ABS data included exploration spending by ASX-listed and unlisted companies, including privately owned natural resource companies.

Resource companies spent $ 718 million on exploration in December 2020. Image: ABS

Exploration spending has tended to be higher for two years

Experts put forward additional reasons for the sharp increase in exploration spending, which was below $ 400 million per quarter between March 2015 and March 2017.

These included high commodity prices, recent major resource discoveries, large amounts of investor money flowing to explorers, and booming market conditions.

MineLife’s founding director and senior resource analyst Gavin Wendt said the surge in exploration spending by ASX resource companies was underway ahead of the COVID-19 success.

“In the last 18 months to two years there has been boom and investors have been interested in the small end of the commodities market. There has been a lot of money going into the sector lately, ”he said.

“The companies’ coffers are full of the cash they have collected and it is their duty to shareholders to spend that money,” said Wendt.

Commodity companies in the exploration stage are heavily biased towards commodity prices, which for some like copper, nickel and tin are going through a bullish cycle.

Big discoveries another explorer

Much of the exploration spending has also been driven by cashed companies looking to mimic the success of ASX companies that have made big discoveries.

“There has been a lot of interest in the exploration space, fueled by fantastic discoveries such as the Julimar discovery from Chalice Mining and the Hemi discovery from De Gray in WA,” said Wendt.

Julimar was discovered by Chalice removal (ASX: CHN) in March 2020 and is a high quality platinum group element nickel-cobalt-copper-gold project located 70 km northeast of Perth, WA.

De Grey’s (ASX: DEG) The Hemi gold find is located in the Mallina Province of WA near Port Hedland.

The trend for ASX exploration companies to look for new discoveries in Australia is the reversal of market conditions a decade ago when some ASX companies went overseas for projects.

“Ten years ago there was a rush of companies looking for offshore projects in regions like Asia and Africa, as it felt like much of the low-hanging fruit had been picked in Australia,” said Wendt.

The increased bureaucratic effort for mining projects was another driver for this overseas exploration trend.

This soon subsided as the “harsh realities” of doing business in overseas jurisdictions had plagued companies.

The explorers looked for gold the most

Gold topped the list of ASX resource companies’ exploration spending at $ 369 million in the quarter ended December 2020, roughly half of total exploration spending.

Exploration spending at eight year highGold accounted for more than half of all exploration spending in the December quarter. Image: ABS

This is more than four times its low of $ 81.7 million in March 2014 and shows that the trend towards increased exploration on gold projects has continued for several years.

WA continued to dominate resource exploration spending, accounting for nearly two-thirds of total spending in the December quarter.

Base metals exploration spending was $ 155 million in the December quarter and peaked at $ 208 million in September 2019.

Iron ore exploration spending was a steady $ 110 million for the December quarter but declined from $ 278 million in the December 2012 quarter according to ABS data.

Iron ore exploration accounted for 15 percent of total spending for the December quarter. For coal, only $ 54 million was spent on exploration in the December quarter.

Exploration spending data for another fossil fuel, petroleum, fell to $ 228.8 million in December, from a high of $ 1.5 billion in June 2014.

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