Despite periods of weakness and volatility, metals prices—the primary driver of exploration spending—have improved significantly since bottoming in early 2009, and have remained well above their long-term trends through 2010-11, according to Metals Economics Group’s (MEG) 22nd edition of Corporate Exploration Strategies (CES).

Almost all companies have responded by increasing their exploration budgets over the past two years. As a result, the industry’s aggregate exploration total jumped 44% in 2010 and a further 50% in 2011, more than doubling from 2009’s recent low of $8.4 billion to the new all-time high of $18.2 billion in 2011.

Figure 1 shows MEG’s estimate of annual nonferrous exploration allocations since the early 1990s relative to a weighted metals price index. The graph indicates the cyclical nature of exploration investment and the correlation between metals price trends and exploration spending. From the bottom of the cycle in 2002, the steep rise in metals prices led to successive budget increases by the majors and meteoric budget increases by the juniors, pushing the industry’s exploration total to a new high of $14.4 billion in 2008—an increase of 620% from 2002.

The boom years came to an abrupt halt in September 2008 as the world fell into the worst economic downturn in decades. Widespread forecasts of a deep and protracted global recession painted a grim outlook for near-term global commodities demand, pushed most metals prices into steep decline, and forced the great majority of companies to slash their 2009 exploration plans. The resulting $6 billion (42%) drop in exploration spending from 2008’s high was the largest year-on-year decline (in both dollar and percentage terms) since MEG began the CES in 1989.

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