Miners are slashing the amount they spend on exploration setting the stage for the next phase of the super-cycle according to data from SNL. The group estimates that the global budget for nonferrous metals exploration at $11.36 billion in 2014, down 25% from 2013 (the nonferrous exploration category refers to precious and base metals, diamonds, uranium and some industrial minerals but excludes iron ore, aluminium and coal).
In the case of a mining investment for example it is not spot commodity prices that incentivise new production, but the commodity prices assumed in feasibility studies, debt and equity raising’s. These long-run commodity price assumptions tend to lag spot prices. This suggests that exploration spending is likely to fall even further, even if non-ferrous metal prices rebound in the short term. Given the typical time horizon of a major mine can be as long as 20-30 years, with high initial capital outlay and traditionally slow capital return, the planning process of these firms has been designed to be very risk averse.
Once the economic case warrants a mine being brought into production it then typically takes around 7-10 years to take the discovery of a new deposit through to production. However, as the iron ore industry shows the economic and commodity price conditions may be very different when the mine is finally brought into production.