Exploration spending in Africa down by 10% in 2020: Market Intelligence

Collective spending on exploration for metals and minerals in Africa is projected to fall by 10% or $111.2 million this year, maintaining the region's record-low 12% share of the global budget for a second consecutive year, according to S&P Global Market Intelligence's Metals and Mining Research team.

Spending has been dragged down by lower allocations to the continent's top exploration destinations -- Democratic Republic of Congo, Burkina Faso, Ghana and South Africa, which contributed a collective $95 million cut, or 85% of the total decrease.

DRC failed to recover from 2019 cutbacks, recording the region's largest budget decline in dollar terms with a 19% drop to $140.5 million from $174.2 million, closely followed by Burkina Faso, which was down by $29.7 million, or 22%.

DRC veers further away from gold

Democratic Republic of Congo's base metals allocations slipped by only $1 million to $107.8 million, completing a decade of annual budgets over $100 million. Although most companies targeting base metals in Africa had lower budgets, Ivanhoe Mines roughly doubled its planned spending to $51.7 million ($26 million each for copper and zinc-lead), reversing a 77% cut to $24.5 million in 2019.

Explorers in DRC are mostly focused on base metals, particularly copper with 58%, or $81.4 million, of the total.

While the global gold budget rose by 1%, gold budgets for the three main regions -- Latin America, Australia and Africa -- all declined. In Africa, projected spending for the yellow metal fell 4% to $590 million, from $615.9 million in 2019, as explorers cut $31.8 million from gold projects in Burkina Faso. DRC's gold budget declined the most, falling below $20 million for the first time since 2004.

This continued a trend of the DRC exploration focus shifting from gold to base metals. Only six companies, one less than in 2019, contributed to DRC's $13.1 million gold budget; Barrick Gold led with $7 million, a 72% decline from 2019.

Partially offsetting gold's decline, the Ivory Coast gold budget rose 39% to $105 million from $75.4 million to take Africa's highest gold share at 18%. Of the 19 companies planning to spend for gold exploration in the country, Endeavour Mining had the largest share at 24%, increasing its budget by $4 million year over year to $25.5 million. Roxgold and Barrick Gold more than doubled their budgets for Ivory Coast to $12.5 million and $11 million, respectively.

Intermediates only company type to increase Africa budget

Planned exploration spending in Africa by intermediate companies rose by 7%, or $13.9 million year over year, while budgets for both junior and major companies declined, by 7% and 17% respectively.

Burkina Faso remained the top destination for intermediate companies, despite allocations declining by 33%, or $18.2 million. Ghana also declined, falling to $13.7 million from $26.7 million in 2019, which was an all-time high. Ivory Coast and Mali fared better with the intermediates with increases of $13.3 million and $19 million, respectively. Base Resources planned to spend $23.1 million in Madagascar, after allocating $1 million in 2019.

The intermediates' increase pushed the majors' Africa share below 50%; however, their 48% was still more than twice the intermediates' 21%. DRC, while still getting the largest major allocation at $66.5 million, could be losing its appeal to the large producers, which lowered their DRC budget by 35% from $102.5 million in 2019. Barrick Gold, overtaken by Newmont and Endeavour, yielded the top spot for share of DRC budget among the majors by slashing its allocation by 72% from 2019.

The juniors had the second-largest share of Africa budgets at 30%, despite dipping by 7%, or $21.4 million, year over year. A $31.2 million, or 127%, increase in Ivanhoe's budget made up for a decline of four in the number of junior companies exploring the region. DRC's junior budget rose by 78%, or $66.3 million, mostly from Ivanhoe. The juniors still predominantly target gold in Africa; their $130.3 million budget accounted for a 43% share of the gold total.

Governments and other organizations posted a budget of $13.1 million for Africa, 40% lower than in 2019. More than half came from China Nonferrous Mining and POSCO, with $4.5 million and $3.0 million, respectively.

The number of companies exploring in Africa remained steady at 259, an increase of one over 2019.

Focus shift may manifest in 2021

A shift in exploration focus in Africa could manifest as soon as next year, along with a budget recovery. With DRC continuing to lose its appeal to explorers, another country could become the top destination in 2021. It will likely be a gold-focused explorer given that most companies currently exploring in Africa are after gold, which had a 58% share of the regional budget.

Barrick Gold, which allocated the most to the region, will boost its projected exploration spending on projects in Ivory Coast and Mali. A post-pandemic surge in the market prices of most major metals will probably lead to an uptick in the majors' revenues, which could lead to higher exploration budgets in 2021.

S&P Global Market Intelligence is a separately managed division of S&P Global.