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The EU’s Weak Performance In Mineral Exploration Expenditure

The European Union’s strategy to tackle issues of access to raw materials in the EU (Raw Materials Initiative) focuses on three pillars, increasing access to raw materials in global markets, increasing supply within the EU and finally through efficient resource use.

The STRADE research project, where S&P’s Metals and Mining Consulting unit is a lead partner, found some interesting contrasts between the EU and other regions, when it comes to exploration spending.

Exploration spending can be used as a barometer to gauge the future supply of minerals. Global exploration expenditures have declined since 2012, mirroring the decline in metal prices and global economic growth. They had more than halved by 2015 (US $8.8 billion) from their 2012 values (US $20.5 billion). The European region accounted for US $396.6 million in 2015, with Finland (US $66.8 million) and Sweden (US $52.8 million) accounting for the bulk of this exploration expenditure.

The low exploration expenditure budgets allocated to Europe are not really surprising. The region, unfortunately, has developed a reputation for being a difficult place to set up new mining projects. ‘Late stage’ exploration activity accounts for half of the budgets in European exploration, unlike Africa, Latin America, North America or the Pacific, where it accounts for much less. ‘Grass root’ exploration remains low in Europe (See Table 1). 

Percentage share of Exploration Expenditure by Region and Stage of Activity

And the situation does not appear to improve in coming years. For the period 2016-2020, STRADE expects Canada and Africa to see the most growth in exploration at an average of 15% (y-o-y), with Australia close behind at an average of 13%. EU exploration will grow more cautiously due to the region’s economic woes as well as its relatively small junior sector (See Figure 1).

Exploration Expenditures by location

Without change to the EU's mining regimes structures, including support for the junior explorers, STRADE expects the EU’s exploration expenditure to grow at an average of 8% over the period, just ahead of the USA’s 7% average y-o-y growth. In 2015, EU based mining and exploration companies allocated only 13% of their exploration budgets to EU countries, the remaining US $711 million were spent abroad (See Table 2). 

Domestic Allocation of Exploration Expenditure

Why is the low level of exploration expenditure a concern? After all, the EU has been able to import all the metals it has required over the last decade, albeit at high international prices during the commodity price boom.

Learn More About Sector Intelligence
Stable supply of minerals, is related to both the availability of minerals and at a ‘stable’ price. The price spikes of the 2005-2008 period were not a welcome sight for consumers. As the EU prepares a strategy for stable supply of minerals, it can reach outwards to other resource rich countries (through dialogues etc.), but it must also look inwards to address its internal mining frameworks.

A more detailed analysis is provided in our Policy Brief.

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Sep 16, 2016