"Follow the money" is always a good adage in stock market investment. There's nothing like momentum or choice to tell a broader story about what investors and companies are doing with their money. And that applies in exploration for minerals as well as energy commodities. This not only tells us what is in fashion — for example, lithium a couple of years ago — but also copper and gold, as well as the old stalwarts: iron ore, coal, and oil and gas.
But actually, the money trail in the March quarter told a very different story. Mining companies hauled back on exploration for minerals across the board, even the so-called key renewables. Even gold exploration, the perennial favorite, saw spending fall despite a series of record prices. Australian explorers and miners just were not that interested in the first quarter.
Spending on other key minerals also fell, but oil and gas saw a jump with some new drilling campaigns.
The slowdown in gold, in particular, was an intriguing move given the record surge in prices in late 2023 and through the first quarter (and into the second all the way to last month and now in June).
In fact, since a low of around $US1,834 in April of last year, Comex gold futures are up over $US500 (to Monday’s close of $US2,368 an ounce), a gain of just under 30%.
And yet, that trend has seen gold exploration spending in Australia fall. Gold exploration spending peaked at $421 million in the June 2022 quarter.
Australian Bureau of Statistics data for exploration spending shows that it remained over $1 billion in total for the mining and resource industries as a whole, but there were some notable falls.
There was a seasonally adjusted fall of 2.2% (or $23.8 million) in total spending to $1.058 billion (seasonally adjusted) — this took the total back to the level for the June 2023 quarter but was above the $1.036 billion spent in the March quarter of 2023.
Mineral exploration saw a big, 18.3% drop in exploration spending to $910.4 million. That fall of a large $204.4 million was made up of a 16.5% drop in exploration around existing deposits ($120.5 million) and a larger 23.15% drop in spending on looking for new deposits. That was down $84 million to $278.6 million and suggests there will be a drying up in new discoveries and new IPOs in the coming months if the drop persists.
Looking at where the cuts occurred, they were most noticeable in the search for what the ABS calls selected Base Metals (copper, etc.), which recorded the largest fall of 27.3% or $74.4 million to $198.5 million. Other Minerals (which includes lithium) also weakened, falling 24.2% or $55.7 million to $174.6 million.
Spending on gold exploration dropped 12% or $40 million to $282.5 million in the three months to March. That was back to the level of a year ago when low prices for the metal saw exploration spending dip to around $276 million.
Iron ore exploration again eased, down $12 million to $150.3 million, and coal exploration again tailed off, dropping sharply to $79.3 million from $90.9 million in the December quarter.
In contrast to the slide in minerals, spending on looking for oil and gas rose 48.3% or $123.6 million to $379.3 million. Onshore spending jumped 34.9% or $61.4 million to $237.1 million, and offshore spending was up 78% or $62.3 million to $142.3 million.
