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By: Leandi Kolver

19th July 2013

Updated 5 hours ago

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Future supply of zinc and lead was expected to be constrained, as not enough discoveries of these metals were being made, advisory firm MinEx Consulting MD Richard Schodde said at the Geological Society of South Africa’s Geoforum held in Johannesburg earlier this month.

The zinc discovery:production ratio for 2026 was estimated at only 0.7, while the discovery: production ratio for lead was 0.5, he said.

“In the longer term, the industry has to spend more on exploration to meet future metal demand or the commodity prices would have to rise,” he said.

Schodde added that as only about 60% of discoveries made actually became mines and as not all the metal could always be mined, he believed that, for the mining industry to remain sustainable, the number of discoveries made had to be at least double the amount of metal needed to meet the future demand.

In addition, the lag between discovery and development had to be taken into account, which meant that future demand for the specific metal had to be considered when calculating whether enough discoveries were currently being made.

“Current discovery rates for gold seem healthy; however, considering the metal’s future demand and the fact that we will need the figure of discovery to be double the metal we will need, the current discovery figure of 1.5 makes the situation quite tight,” he explained.

Similarly, copper discovery/ production rates at 1.7 were seemingly in balance, but still tight, and uranium rates were balanced with the number of new discoveries being twice as much as the expected future demand of the metal.

Schodde pointed out that global exploration spend increased from $2.9-billion to $29.4-billion over the last decade, with exploration spend having reached an all-time high in 2012.

“However, owing to lower commodity prices, exploration spend is forecast to drop by 20% in 2013 and by another 15% by 2020. While this may change if commodity of gold prices shift, currently, it is a gloomy exploration forecast in direct response to a gloomy price expectation,” he said.

Schodde added that junior exploration companies were facing a cash crisis.

Despite securing much finance in 2006/7, junior explorers experienced severe cash shortages during the global financial crisis and, as a result, dramatically reduced exploration expenditure in 2009.

“While funding stabilised in 2011, it dried up again in 2012, with a key problem for juniors being low starting cash reserves. As a result, I believe that the 2013 ‘bust’ could be more severe than the 2008 financial crisis,” he said, adding that junior miners would need to consider extensive consolidation to survive.

In addition, Schodde cautioned that funding challenges would continue to include increasing exploration costs and a decrease in the rate of new discoveries. He attributed this to higher input costs such as labour, drilling and administrative costs.

“On the upside, however, Africa still offers the best results for money spent. In 2012, for exam- ple, exploration spend on the continent equalled $17-billion, while there were 116 new discover- ies. By comparison, Canada spent $22-billion on only 65 discoveries,” he commented.