Australia’s Paydirt, Issue 331
Ironically, given the current sentiment towards the sector on capital markets, exploration remains the lifeblood of the entire mining industry
Without a thriving exploration sector, the entire mining ecosystem comes under threat. For countries aiming to build their mining sectors, it is crucial they design their policies to strengthen the key ingredients of a successful exploration industry – security of tenure, an efficient permitting system and predictable legislation.
This was proven once again at Africa Down Under. Those countries who could best meet that criteria are the ones thriving, those who cannot find it difficult to attract exploration investment and therefore find their mining sector’s stalling.
It is difficult for governments to place emphasis on exploration. The headline numbers around investment are incomparable to those for construction and operation. Exploration doesn’t generate the same cash injection, create as many jobs or produce any discernible government revenues. It is, however, an investment in the future, and in Africa can have immediate benefits on the ground.
I have spoken several times in the past about mining’s unique ability to bring economic activity to regions in the developing world. Deposits are discovered and developed into mines, bringing jobs, economic activity and opportunities to communities enterprise previously had no interest in.
While the greatest impact comes once construction begins, even the exploration phase can have a dramatic – and immediate – impact.
When an exploration company arrives at a greenfields site, its presence will suddenly see guesthouses occupied, restaurants filled, local suppliers engaged, workers employed and low-level infrastructure installed, all within the first few weeks of the company’s arrival.
That activity continues, with significant investment throughout the often decade-long road to development.
At the wider level, a vibrant exploration sector has a massive multiplier effect by finding the deposits which will become the new mines and revenue creators of future decades.
A big part of a government’s mining policy should be devoted to ensuring a healthy and prosperous exploration sector. Australian governments began to recognise this in the late 2000s when, led by South Australia, they began funding massive geological survey and co-funded drilling campaigns. These programmes have generally been a huge success. A 2021 West Australian Government-funded study found that every $1 million invested by its exploration incentive scheme stimulates exploration activity which generates $10.3 million in direct benefits for WA.
With so many other priorities, African governments are unlikely to support co-funded drilling programmes, but the most successful have identified the other facts and have committed their limited budgets to funding them.
That a handful of governments are beginning to recognise the importance of exploration makes it all the more galling for African-focused explorers then, that financial market support for exploration is so moribund.
In my 19 years at Paydirt, I’ve never witnessed such a grim time for the exploration sector. It is not only that the market is tough at the moment, but that it has been so prolonged.
Even worse, there are no obvious signs as to why it may shift, because the negative sentiment seems to be largely disassociated with the metals market. Yes, lithium and rare earths explorers have suffered from the bottom falling out of their respective markets, but copper and other metals are high by historical standards and juniors are still struggling to access capital.
Even gold juniors are struggling to attract support, an almost ridiculous notion given the record prices of the precious metal.
I’ve asked any number of junior company executives, analysts and industry veterans to explain why things are so bad. The responses have been myriad – from interest rates to passive funds, the strength of tech stocks to the breakdown of the traditional financial market structures, global crises (economic, geopolitical and climate-related) and presidential elections. None seem to provide an accurate or fulsome answer.
That is a worry, as it suggests that the very model of exploration financing in capital markets is close to broken.
Then again, perhaps we had this existential crisis during the last downturn and our memory has conveniently forgotten all about it. It may be when the new year rolls round, interest rates will have fallen, a new president will be in the White House and deals will have been struck over Ukraine and Gaza, all of which will lead to a torrent of new capital for exploration projects.
We can only hope.