Exploration


Issue

To provide an update of the quarterly minerals exploration data (excluding petroleum) as provided by the Australian Bureau of Statistics.1

Continuing decline in minerals exploration in Australia

Based on ABS figures, total minerals exploration spend in the June 2015 quarter increased by 8.5 per cent to $344 million.  Exploration on areas of new deposits rose 25.3 per cent and expenditure on areas of existing deposits rose 1.3 per cent.  The largest increase by minerals sought came from expenditure on gold (up 22.7 per cent) followed by coal (up 15.4 per cent).

In the June 2015 quarter, total minerals exploration metres drilled increased by 35 per cent to 1,540,200 metres.  Drilling in areas of new deposits rose 81 per cent and drilling in existing deposits rose 22.7 per cent. Drilling in areas of new deposits accounts for a quarter of drilling activity.

While these quarterly increases are a welcome reversal of trend, in the financial year 2014-15, total minerals exploration spend decreased by 25.1 per cent to $1,575 million from 2013-14 (and 60.2 per cent lower than peak exploration activity in 2011-12). Total minerals exploration metres drilled decreased by 7.6 per cent to 5,963 m from 2013-14 (and 47.7 per cent lower than peak exploration activity in 2011-12).  These are at levels last seen in the mid-2000s (Figure 1).

in 2014-15 exploration expenditure per metre drilled on new greenfield deposits was $695 and on existing brownfield deposits was $110, indicating that greenfield exploration costs 6.3 times more per metre than brownfields exploration.

Figure 1: Minerals exploration expenditure and metres drilled

Source: ABS

Exploration Activity

Australia needs an expanded exploration effort to improve its competitive standing as an exploration investment destination and to ensure the development of Australia’s next generation of mineral resource projects. 

Over the past 20 years Australia’s share of economically significant greenfield mineral discoveries has declined. Australia’s share of global exploration for non-fuel mineral commodities has declined from 17.6 per cent in 2002 to 12 per cent in 2014 (Figure 2).2

Figure 2: Share of global exploration budgets

 Source: US Geological Survey

The most recent exploration data shows that exploration expenditure continues its sharp decline. Nominal exploration expenditure fell 25.3 per cent in 2014-15 to total $1.575 billion.  This is down 48.5 per cent from 2012-13 and down 60.2 per cent from peak minerals exploration activity in 2011-12.  As shown in Table 1, declining exploration expenditure is recorded across most commodities. It also declined in all states and territories.

Western Australia continues to account for the largest share of total exploration expenditure (about 58 per cent) followed by Queensland (almost 20 per cent).  Iron ore accounted for a 28 per cent of total minerals exploration expenditure with gold exploration expenditure next highest at 25 per cent.  Base metals accounted for 18 per cent and coal 16 per cent.

Exploration expenditure in 2014-15 on new greenfield deposits was $485 million while expenditure on existing brownfield deposits was $1.091 billion.  This is substantially down from the 2013-14 figures of $682 million (down 28.9 per cent) and $1.426 billion (down 23.5 per cent) respectively.   

Metres drilled in 2014-15 on new greenfield deposits was 1,569,300 metres while metres drilled on existing brownfield deposits was 4,394,900 metres.  This is down from the 2013-14 figures of 1,597,600 metres (down 1.7 per cent) and 4,855,800 metres (down 9.5 per cent) respectively.

As shown in Figure 3, exploration expenditure per metre drilled in 2014-15 on new greenfield deposits was $695/m and on existing brownfield deposits was $110/m, indicating that greenfield exploration costs 6.3 times more per metre than brownfields exploration.  In 2003-04, greenfield exploration (at $177/m) cost 1.7 times more than brownfield exploration (at $104/m). In 2014-15 greenfield exploration accounted for a quarter of total metres drilled and in 2003-04 greenfield exploration accounted for almost half of total metres drilled.

Table 1: Minerals exploration expenditure – by mineral sought

Mineral 2011-12
($m)
2012-13
($m)
2013-14
($m)
2014-15*
($m)
% change**
(y/y)
Copper 442.6 319.3 176.8 144.4 -18.3
Silver, lead, zinc 87.5 79.8 45.8 51.9 +13.3
Nickel, cobalt 265.4 164.5 99.4 82.7 -16.8
Gold 768.0 661.8 434.3 395.7 -8.9
Iron ore 1150.6 1011.3 710.6 447.7 -37.0
Mineral sands N/A 37.8 21.1 27.1 +28.4
Uranium 153.6 69.5 43.9 40.6 -7.5
Coal 834.3 544.0 398.7 251.8 -36.8
Other (includes diamonds) 202.5 167.5 164.7 134.5 -18.3
Total 3953.0 3055.4 2108.8 1575.0 -25.3

Source: ABS, MCA estimates; *2014-15 is for YTD Mar 15; **Mar 14 – Mar 15

Figure 3: Minerals exploration expenditure per metre drilled

Source: ABS

The 2014 survey of mining executives by the Canadian based Fraser Institute indicates that Australia’s attractiveness as a destination for mining investment is declining. Australia fell further behind major competitors Canada and the United States with the ranking of all states except South Australia declining over the past year. Western Australia is now the only state to be ranked in the top ten mining jurisdictions. Global executives expressed concern at duplicative and costly approvals procedures, higher royalty charges over recent years and development delays caused by anti-coal activism.3

Tax treatment of exploration

Taxation treatment is a crucial influence on Australia’s competitiveness as a destination for minerals exploration. As the Colorado School of Mines has observed:

Both the rate and form of taxation affect the relative attractiveness of different countries or sub-national regions for investment in mineral exploration and development… Exploration is footloose in that explorers can redirect their activities to regions or countries with more favourable tax regimes.4 

The MCA welcomes the government’s acknowledgement that new mineral discoveries underpin the future of the Australian mining industry. The Exploration Development Incentive allows eligible junior explorers with no taxable income and their Australian shareholders to offset tax losses. Australia’s immediate deduction regime plays a vital role in generating the exploration activity essential to securing a future pipeline of mining projects and the tax revenues generated by the industry over the longer term, including through royalties payments. It recognises that exploration expenditure is an ongoing, necessary and ordinary business expense for a minerals company, and that immediate deductibility is the most practical and efficient way to treat exploration expenditure. Major reviews, including the Ralph Review, have concluded that immediate deduction is the most practical way to treat exploration expenditure.

The next generation of geoscience

World-leading exploration geoscience has been a key competitive advantage of Australia’s exploration sector.

The MCA supports the collaborative agenda advanced by the Australian Academy of Science’s UNCOVER vision to leverage Australia’s capability and launch new programs to search and understand the potential endowments that lie under cover at greater depths.

Exploration has only taken place over about 20 per cent of Australia’s land mass. The remaining 80 per cent of the continent which is covered by regolith and sedimentary basins is largely unexplored. This represents an exploration opportunity of more than 7.5 million square kilometres.5

The UNCOVER Group is supporting AMIRA International in looking to define a roadmap that would include the identification of fundamental new data, as well as targeted scientific and technical products. The MCA was a sponsor of stage 1 of this project, which has identified 16 high priority research and technology development areas uncover the new discoveries that can sustain future production. The MCA welcomes the commitment made to the UNCOVER project by Commonwealth, state and territory governments. Industry collaboration is at the heart of this work, but government commitments to pre-competitive geoscience data, research and improved policies for taxation and regulation are no less important.

Conclusion

Exploration activity in Australia has continued to decrease significantly in terms of both exploration spending and metres drilled in 2014-15 from peak exploration activity in 2011-12. Exploration spend per metre drilled for new deposits in 2014-15 contributed one quarter of all exploration metres drilled, at a cost of more than 6 times the exploration spend cost per metre drilled on existing deposits.


(1) ABS, http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/8412.0Jun%202015?OpenDocument
(2) D.R. Wilburn and K. A. Stanley, N. A. Karl, ‘Annual Review 2014: Exploration review’, Mining Engineering, Vol. 67, No. 5, May 2015, pp. 16-38.
[3] Fraser Institute, Survey of Mining Companies 2014http://www.fraserinstitute.org/research-news/display.aspx?id=22259
[4] Roderick G. Eggert, Mineral Exploration Development: Risk and Reward, May 2010
http://www.un.org.kh/undp/images/stories/special-pages/mining-conference-2010/docs/Mineral%20Exploration%20and%20Development%20by%20Roderick%20Eggert_Eng.pdf
[5] Australian Government, Department of Industry, Tourism and Resources, Minerals exploration: The road to discovery: the minerals exploration action agenda, 2004.