09 March 2004 01:59
Spending fall could hurt mining groups EXPLORATION:
Future profits of large mining companies could be hurt by a lack of
significant new metals and minerals discoveries, a hangover from years of
falling exploration spending.
The current boom in the mining sector means that spending on new projects has
risen for the first time since 1997, but any discoveries will take several
years to come into production, potentially leaving the market short of
commodities.
A survey by Canadian consultant Metals Economics Group found that exploration
spending in the international mining sector rose by 26 per cent to Dollars
2.4bn in 2003, against the low of Dollars 1.9bn in 2002. Spending had fallen
steadily since the peak of Dollars 5.2bn in 1997, as low commodity prices
discouraged exploration.
CVRD of Brazil, De Beers and Anglo Platinum spent the most on exploration
last year, said Michael Chendar of MEG. About 75 per cent of total spending
was allocated to gold exploration, including numerous junior company projects
around the world.
But Mr Chendar warned that some of the projects currently being funded in the
junior sector would only survive given high metals prices.
"Those of us who have lived through mining cycles know it is unwise to
use current prices as a guide for project development," he told the PDAC
mining conference in Toronto.
Analysts agree that, although the major mining groups have healthy project
pipelines, the lack of large new discoveries means that their growth
prospects could be compromised in five years' time.
Rio Tinto is considered to have a lack of new projects lined up compared with
rivals Anglo American and BHP Billiton, although much of BHP's spending
has been on its oil and gas business rather than its mining division.
"It all comes down to China," said one analyst. If the
country's rapid economic growth slows down there should be enough supply
to satisfy demand for raw materials such as zinc and copper. But "if
China does not slow down there is going to be a shortage of big mines to feed
demand".
Mr Chendar said that major mining groups may have to look at smaller,
higher-margin mines.
The other option was to move into riskier but geologically attractive parts
of the world, such as central Africa and Russia.
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