Levers to improve australia's global position for attracting resource exploration investment
Global share of non-ferrous exploration
(Metals Economics Group 2011)
The 2011-2012 report, however, reveals an interesting story of an east-west divide in Australia when it comes to the Policy Potential Index. This is a composite index that measures the effects on exploration of government policies. Out of a possible 100, Western Australia, South Australia and the Northern Territory scored highly, viz. 81.5, 75.3 and 81.5, respectively. Scores for the other jurisdictions were more modest viz. New South Wales - 62.4, Queensland - 65.5, Victoria - 52.1 and Tasmania - 64.8. New Brunswick topped the list with a score of 95 and Honduras bottomed at a score of 1.7. The message from the Fraser Institute is clear. Australia is seen as doing much better with its geoscience than its minerals policies.
Since 1999, the Behre Dolbear Group has produced an annual political risk assessment of the key nations in the global mining industry. Behre Dolbear’s 2012 ranking again scored Australia at the top of twenty five countries with a score of 57 out of a maximum possible 70. Behre Dolbear rates countries on their economic and political systems, social issues, permitting delays, corruption, currency stability and tax regime.
Richard Schodde (MinEx Consulting) regularly reports on the state of the Australian exploration industry and his 2011 review (AMEC Conference presentation) is an excellent distillation of some of the key issues. He reports a view that Australia is a mature exploration environment. This is a view reinforced by Australia’s lower discovery rate. A lower discovery rate ultimately flows through to increased discovery cost and a reduced capacity to attract investment.
Schodde also notes that half of locally exploration sourced funds are now spent offshore (Figure 3). His comments in relation to the junior exploration sector are very telling. He reports that juniors now account for over half of the Australian exploration spend. Furthermore, over the past ten years juniors have come to dominate greenfields exploration increasing from 56 per cent to 66 per cent of total spend in these terrains.
Figure 3 (after MinEx consulting)
Clearly Australia has a booming exploration industry but this is in lock-step with a global boom. The latest figures to the end of the September quarter 2011 show the previous 12 months Australian exploration spend at $3265 billion of which 43 per cent is spent on the bulk commodities iron ore and coal. Yes, Australia has dropped from its position of 20 per cent of global spend in the early 2000s and since then Canada has maintained its lead as the prime exploration investment destination. The latest MEG figures, however, show Canada taking a smaller share of the global spend. MEG has observed that global exploration has an increased appetite for risk with diversification into many countries that once were off the agenda. This will obviously have an impact on how much is spent in Australia, and Canada.
Australia’s competitive position can be described as a little like the “curate’s egg”, good in parts. We have a great mineral endowment and excellent potential. We are deemed low risk politically. We do well in pre-competitive geoscience.
On the down side, Australia’s discovery rate has substantially declined. Australia has experienced a poor discovery rate over the past twenty years. Discovery is becoming harder and more costly. In their submission to the Policy Transition Group Issues Paper in 2010, the peak industry groups pointed to the recent lack of exploration success in Australia. Between 2000 and 2010, on average, there have only been 43 significant deposits found, whereas, in the 1980s and 1990s over 10 significant deposits were found each year on average. Despite increased exploration expenditures, Australia’s discovery rate has roughly halved since the start of the decade. These figures exclude consideration of bulk commodities.
There is a view that Australia is a mature exploration environment where all the Tier 1 deposits have been found. This is further compounded by the extensive deep cover concealing potentially fecund rocks but exploration here is technically difficult and costly.
Furthermore, Australian exploration companies are increasingly active overseas. Junior explorers, for example, have a perception that they have more stockmarket appeal if they are seen as active in Africa or South America.
The bulk of exploration is being conducted in brownfields areas but the future lies in renewing the inventory of deposits through major new discoveries in greenfields terranes (Figure 4).
Industry satisfaction (or dissatisfaction) with minerals policy across Australia is not uniform. There appears to greater satisfaction with the western states (WA, SA and NT). Exploration has few barriers to entry or exit and industry unfriendly policies in half of Australia will affect Australia’s overall capacity to attract and retain investment.
We have traditionally regarded considered Canada as our principal competitor. As nations, we have traditionally shared for many years about one third of global exploration expenditure. We share similar legal systems, mining and exploration legislation and, for that matter, values. We understand what drives exploration investment in Canada and why it dominates in the global expenditure stakes. Unfortunately for Australia, Canada has serious financing advantages. The Toronto Stock Exchange is the global centre of exploration capital raising and the United States is a major source of risk capital for Canadian juniors. Furthermore, both the Federal and Provincial governments provide tax incentives for explorers. For the cash-strapped junior exploration sector the advantages of this alone cannot be overstated. Canada, like Australia, has immense mineral wealth.
In reality, however, every jurisdiction that permits/encourages mineral exploration is our competitor. A very effective competitor may be a country with raw and unrealised mineral potential that does nothing but open up to foreign investment in exploration. Since the barriers to entry and the barriers to exit are very low for exploration investment, such jurisdictions are very tempting if a company feels it may have a first-mover advantage.
Factors influencing global exploration investment that impact Australia
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