Riskier locations key for future copper exploration

Leading copper miners told the CESCO exploration forum in Santiago, Chile, that diminishing exploration opportunities in established mining-friendly countries are forcing companies to look further afield.

Author: By Josephine Mason
Posted: Tuesday , 17 Apr 2012

SANTIAGO (Reuters) -

Big copper miners need to explore for new deposits in riskier locations to offset falling output from aging mines and to meet rising demand for refined metal, and will likely have to do the heavy lifting themselves rather than rely on juniors.

Small- and medium-sized mining companies have typically done the work of drilling and discovering new deposits often in risky countries and often are later bought out by the larger players who have the financial clout to bring a project into production.

But conditions are ever more challenging with costs rising and junior mining companies facing severe trouble in securing funding for projects. In addition, opportunities for exploration in established mining-friendly countries are also diminishing, forcing companies to look further afield.

This is a dramatic about-turn for the industry, which has seen juniors outspend the majors since 2004.

"We need to take more political risk," Michael Chender, chief executive of Metal Economics Corp, told the CESCO exploration forum in Santiago, adding that while risk tolerance had recovered after plunging in 2008 and 2009 it had not returned to 2007 levels.

Chile's state copper giant Codelco, the world's No.1 producer, said on Monday it was interested in getting into exploration in both Mexico and Colombia, as it looks to expand beyond its local stable of world class deposits.

"We decided to start with exploration activities in Brazil, which we have been doing for a while now," Codelco CEO Diego Hernandez told foreign correspondents on Monday. "Now we are beginning exploration in Ecuador, and we would like to be in Colombia too and eventually in Mexico."

COLOMBIA TO DEVELOP MINERAL WEALTH

Colombia's government said on Monday it expects to sell exploration rights to its large untapped mineral resources next year as part of its effort to attract foreign investment to develop its gold, coal and silver mining sector.

The Colombian government's new national mining agency will coordinate the sale of rights to develop the country's unexplored mineral wealth as it aims to boost its income from mining, which only accounts for 2 percent of the country's economy.

Some of the biggest names in commodities have already expressed interest in taking part in what the government hopes will turn into an exploration boom, deputy mining minister Henry Medina told Reuters on Monday.

Medina said his ministry aims to lure foreign investment by clamping down on illegal mining, tightening up regulation and establishing a formal mining code. However the government will not participate directly in any of the projects, he said.

"We don't want to scare off investors. We want to be as predictable as possible" Medina said.

This is particularly important given the turmoil seen in other Latin American countries in recent years from Peru and Chile, which both made dramatic changes to mining taxes, to Argentina, where the government on Monday unveiled plans to seize control of leading energy company YPF.

The aim is to increase mining investment to above the $2.6 billion invested last year, Medina told Reuters, but declined to give a target figure.

Mining only accounts for 2 to 3 percent of Colombia's gross domestic product, which is small compared with oil, which makes up 83 percent of total royalties, according to Claudia Jimenez, who is head of the association created a year ago to promote private investment in large-scale mining projects in Colombia.

"Colombia is not yet a mining country," she said.

But that will change if investment takes off. The country aims to raise coal output 35 percent to 115,000 tonnes annually by 2014 from last year's level of 85,000 tonnes and gold output by 30 percent to 73 tonnes from 56 tonnes last year, she added.

GROWTH IN SPENDING TO SLOW

The rate of global spending growth in exploration is waning after two years of stratospheric increases. The recovery in copper prices has encouraged companies to expand their exploration operations.

Spending will still rise, but will not match the 50-percent rise last year and 44-percent growth in 2010, Chender said.

"Even if prices are higher, we're hitting the limits on spending," he said.

A quarter of spending goes into Latin America which is considered to be politically stable and to have an established mining culture. That is equivalent to combined spending in the United States and Canada.

Total worldwide copper exploration spending rose 60 percent to $3.7 billion last year, with spending in Chile was up a third to $585 million.