TSX supercharges global recovery in global mining exploration
Don’t expect your assay results to get processed quickly!
Global mining exploration surged to the highest in several years, due in large part to companies that belong to the TSX Venture Capital ecosystem. That’s the upshot of the Pipeline Activity Index (PAI), a tool devised by S&P Global Market Intelligence that scrapes financial reports to monitor exploration activity.
Drilling occurred on 554 projects worldwide in Q1 2018, slightly below Q4 2017 which was the highest since Q1 2012. Companies from the TSX universe accounted for 54% of that total, followed by the Australian Stock Exchange, with 39%, according to S&P Market Intelligence.
Despite the uptick in exploration activity, Wall Street still hasn’t totally shaken off its hangover from the commodities super-cycle, which arguably ran for a decade between 2003 and 2013. Mining financing was at similar level to Q1 2017, despite a considerable run in prices last year.
Mining bulls will argue that the price swoon starting in 2013 had more to do with the step change in U.S. economic policy than it did with industry supply and demand fundamentals. According to London-based mining consultancy CRU, the freeze on capital funding large-scale mining projects has only worsened a structural shortage in LME-traded base metals that might result in substitution.
“Investors are clearly still sitting on their thumbs” with regard to mining, Chris Hinde, S&P Global’s director of metal and mining said on a webcast last week to discuss the state of global markets.
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For sure, investors are cautious as prices dipped in the first quarter of this year. Even metals that have outperformed in recent history such as nickel and zinc had a big sell off in Q1 amid a wider rout in financial markets, as the China-U.S. trade spat got worse. Uttered days before the truce, don’t expect the sell-off to last, said Hinde. Prices right across the metals complex should rise this year, with the exceptions of iron ore and tin, he said.
The other noticeable trend from the S&P survey is that Latin America got a huge shot in the arm in exploration spend, while money spent on drill rigs in North America declined. Hinde ventures the opinion that TSX companies are managing to raise more money on the exchange and spending it south of the Rio Grande. Allocated financing almost doubled to Latin America to about $3 billion, almost half of the global total. Most exploration spend was on gold projects, with base metals individually only accounting for small percentages of the total.
The higher spend in Latin America comes as investors dumped investments in emerging market economies in May. Investors got spooked by the same rise in tensions between the US and China, leading to a slump in emerging market currencies versus the US dollar.
Emerging market crises pose a double-edged sword for mining companies investing in these jurisdictions. Firstly, local costs get cheaper, and the exploration dollar goes further. But big sell-offs in emerging markets can affect politics and lead to tensions for the governments who get their access cut to sovereign debt markets.
Then again, it’s not surprising that companies are willing to take a risk on more less explored territories. The S&P survey highlighted the difficulty on finding a world class deposit of just about anything in 2018. The study showed that despite the increased drilling effort around the world, the percentage of successful discoveries has fallen.
Matt Craze has covered commodity markets for more than 20 years, working as a researcher at CRU International, and for over 10 years as a ... <Read more about Matt Craze>