A recent analysis of 2020 exploration budgets in the mining sector points to an 11% year-over-year decline in global budgets from $9.8 billion in 2019 to $8.7 billion in 2020, according to S&P Global Market Intelligence Metals and Mining Research. Despite the drop, industry experts cast the outcome as something of a win for the mining sector, amid a major pandemic and the concomitant toll it has had on economic activity. In other words, it could have been a lot worse.
"It was a rough year thanks to COVID-19, but it could have been way worse if the financial markets didn't turn around at the drop of a dime," Market Intelligence research analyst Kevin Murphy said. "They really shifted ... from the fear of COVID-19 right back into the regular market. It was actually very surprising."
Metal prices help tell the tale. The price of copper was US$6,149 per tonne at the end of 2019 but dropped under US$5,000/t in March as fears over COVID-19 grew. It then climbed back before increasing to $6,666.25/t as of Oct. 7.
"If it wasn't for the swift turnaround that we saw in China, and a ramp-up in demand from them for raw materials, then the copper price absolutely would not have recovered the way it did," Murphy said. "And the nickel price wouldn't have recovered."
A similar situation, albeit for different reasons, unfolded in the gold market as investors sought refuge from an asset often cast as a safe haven during turbulent economic and geopolitical periods. Gold traded at $1,520.50 per ounce at the end of 2019, broke $2,000/oz in August to set a record price in absolute terms, and has recently been trading around $1,900/oz.
Strong metal prices have translated into exploration optimism by miners and explorers alike in recent months. The former might have prolonged or deepened budget cuts to exploration programs if metal demand had undercut prices. The latter, often driven by investor zeal for gold, have returned to financing markets that have been notably strong for much of 2020.
"Most companies would have been shut down anywhere from two to four months," said John Burzynski, CEO of Osisko Mining Inc., a gold company running one of the largest exploration programs in the junior sector. "So the delta is exactly what's missing in terms of everyone sitting on their hands for two to four months."
Industry experts told Market Intelligence that they expect exploration activity to remain strong in the short term. They pointed to deferred plans with major miners in particular as helping to restart exploration that was paused during the earlier days of the pandemic. They also said the recent surge in financings will likely underpin exploration activity by juniors on earlier-stage projects well into 2021.
Murphy said exploration budgets could rise about 20% year over year in 2021, while also pointing to huge uncertainties over how governments and industry may react to new waves of the pandemic. "It's really tough to say what could happen," he said.
Likewise, David Harquail, chairman of leading mining royalty company Franco-Nevada Corp., said it is tough to gauge how 2021 metal prices will trade and what level of support investors will lend the industry.
"Next year will be about the new regime," Harquail said, referring to the upcoming U.S. presidential election. "Is there going to be more stimulus or not? How deflationary could things get? It's a function of the equity markets and I don't think gold going up by itself is enough."
To Harquail, one event that could help buoy the exploration sector is a major discovery. As Market Intelligence has noted over the years, high-quality discoveries have declined in recent decades despite increasing exploration budgets.
"It will all break out when someone makes that new camp discovery again and we can get juices going again," Harquail said.