Last week we looked at how the resources boom still has legs.
Despite rising volatility for metals such as copper and zinc, down sharply this month, and gold and oil, up sharply, the boom will continue.
Growing demand from China and elsewhere will be the main driver, but deposits have to be found first.
Even with our extensively explored continent, large sections are still untouched, or poorly understood.
Australia is a low risk country for people investing here. There's none of the country risk of Africa, or even China.
Stable cultural and social life, the rule of law, open courts a reliable work force, and good companies, are big attractors of investors.
One of the sectors we have come to become very good in is mining services: And exploration is perhaps the most important, although those doing the mining and cultivating the boom might argue differently.
The only sector we are fluffing at the moment is infrastructure because of the conjunction of slow governments and private groups greedy for quick development or who are trying to take advantage of a near monopoly position, such as the coal ports congestion.
One of the less known side effects of the boom has been the surge in exploration: the figure, according to the Australian Bureau of Agricultural and Resource Economics, was a massive $ billion in 2006-07 spent on finding minerals and energy deposits in this country.
Driving much of the increase has been the sharp rise in oil and gold prices (as shown in the above graph).
ABARE said it was the highest in real terms since 1981-82 and 73% above the average exploration expenditure over the last 25 years.
So whenever you here of some part of the resources industry calling for Government help on exploration, remember this story.
Here's what ABARE reported last week.
Exploration is an investment in knowledge about the location, size and quality of petroleum and mineral deposits.
The ability of Australia's minerals and energy sector to sustain its recent strong growth and expand its contribution to national economic performance in the medium and longer term depends on the amount of investment in minerals exploration.
In general, decisions to invest in minerals exploration depend on the probability of discovering an economic mineral deposit or extending the resource base of a known deposit. A range of economic and policy factors will also influence companies' expectations of the likely return on investing in exploration.
Such factors include: prevailing and expected mineral prices; existing mining and processing technologies; input costs more generally; land access; and government policies.
In 2006-07, minerals exploration expenditure in Australia totalled $3.9 billion, an increase of 53% on 2005-06 exploration expenditure.
In real terms (2006-07 dollars), exploration expenditure in 2006- 07 was the highest on record and around 73% higher than the average annual expenditure on exploration over the past 25 years.
The recent increase in exploration expenditure is a response to higher world prices for most mineral and energy commodities.
It also reflects the trend toward developing projects with higher production capacities, which generally require larger resource delineation programs.
While exploration expenditure has increased recently, it cannot be determined from the Australian Bureau of Statistics data what proportion of the increased expenditure is related to increased exploration activity and what proportion is attributable to higher costs of inputs, such as labour and equipment.
Over the past two years, expenditure on brownfield exploration – that is, exploration around existing or known deposits – has made up an increased proportion of total exploration expenditure.
This can be partly explained by mining companies reassessing reserves at current and depleted mining areas with the view to extracting additional reserves that are now considered to be economic as commodity prices are currently high.
Further, mining at or near existing deposits is attractive for companies because projects can be started sooner and generally require lower capital expenditure because there is already existing infrastructure in place.
(A good example of this is the work Oxiana is doing at Prominent Hill in South Australia where it is already exploring for new deposits in the area before the new mine is brought in stream. it is doing the same thing at its big WA mine at Golden Grove).
In 2006-07, exploration expenditure increased across all major commodities.
Petroleum exploration expenditure was $2.23 billion, an increase of 71% from 2005- 06.
Expenditure on petroleum exploration in 2006-07 was the highest in real terms since 1982-83 and 87% higher than the annual average over the past 25 years.
Increased petroleum exploration expenditure has been encouraged by historically high global oil prices.
With world oil prices forecast to remain relatively high in the short term, exploration expenditure can be expected to remain high.
Iron ore exploration expenditure in 2006-07 is estimated to have almost doubled to $320 million.
Successive annual contract price rises and the prospect of continued strong Chinese demand for iron ore over the medium term are important drivers behind the significant increase in expenditure.
In 2006-07 gold exploration expenditure totalled $456 million, an increase of 11% cent.
The increase in gold exploration activity has been driven largely by the increase in Australian dollar gold prices, which in 2006-07 averaged around $US800 an ounce, an increase of 15% from 2005-06.
Exploration expenditure on base metals (including copper, lead, nickel and zinc) was $555 million in 2006-07, an increase of 51% from 2005-06.
This overall increase underpinned by strong rises
