Life coming back to the global exploration sector

Coal geologist at lignite mine north of Thailand. (Image by Sumit buranarothtrakul |Shutterstock.com)

After five consecutive months of decline, global mining exploration began showing signs of life last month, with SNL Metals & Mining’s Pipeline Activity Index (PAI), which monitors the health of the sector, gaining 9.4 points.

SNL’s PAI rose to 58.4 in March from 49 in February. But don’t fool yourself. The figure is not that great, as it only means there were six positive project milestones last month, compared to only one such announcement in February.

The index, which hit an all-time low of 40.2 in April 2014, measures activity in the metals supply pipeline, incorporating four stages into a single comparable index: significant drill results, initial resource announcements, major financings and project development milestones.

Two of those constituents improved last month, and two declined, SNL analysts explain:

The in-situ resources positively affected were valued at US$9.6 billion, compared with only US$2.7 billion in February. Unusually, there were no negative milestones in March; a welcome relief from the six negative announcements in February, valued at over US$875 billion.

There was also a near doubling to nine in the number of initial resource announcements. The value of these initial resources, using SNL’s methodology, soared to US$16.5 billion, compared with only US$2.7 billion in February.

In contrast, there were fewer significant drill announcements in March, compared with February, and there was also a decline in the number of completed financings in the sector. SNL recorded 18 financings by junior and intermediate companies last month, worth only US$89 million, compared with 21 financings in February, worth US$642 million.

In Australia, where major miners have been shelving or unloading projects and mines, experts are expecting a boom of mergers and acquisitions, especially in the gold sector. Analysts argue Down Under’s gold mines have largely become more profitable during the past year on the back of the falling local dollar and a trend for miners to axe costs.

According to Australia’s Financial Review, there have already been three prominent ASX-listed gold miners very recently or currently involved in large-scale merger and acquisition activity: Papillon Resources, Northern Star and last week’s deal between Evolution Mining and La Mancha Group International.

Graph courtesy of SNL Metals & Mining.