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Canadian targets

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Essential Metals & Mining Insights July 2020


Canadian targets

WithEaster so recently behind us, few will be surprised to hear that one of the largestcommodity price increases over the past year has been for chocolate. The cost ofeveryone's favorite confection has risen by more than 10% since end-March 2015 —an increase attributed to rising cocoa and sugar prices.

Mintec'sweighted price index for the main constituents of milk chocolate (sugar, whey powder,whole milk powder, cocoa powder and cocoa butter) has been buoyed by a 26% risein cocoa powder, a 19% increase in cocoa butter and a 15% hike in sugar prices.The commodities data company notes that milk chocolate now costs about one-thirdmore than in 2012, although the price is still 10% below the all-time high reachedin 2014.

It isn'tjust chocolate that's benefiting from soaring demand. In London, there has beena spate of brick thefts. Thieves have taken to knocking down walls to steal London'svaluable old yellow bricks, which can sell for over £1 each. The distinctive colorcomes from the local clay from which the bricks were made. Often pre-Victorian,the bricks were widely used in the southeast of England until the early 20th century.

Metalsprices are also rising, at last. For example, as of the end of last week the priceof zinc had risen almost 13% this year, and iron ore (62% Fe) is up an encouraging27%. For exploration companies, however, by far the most important factor is theperformance of gold. Fortunately, the precious metal is also up over 15% this year,closing last week at US$1,221/oz.

Despitegold's lackluster price performance last year, the search for the precious metalcontinued to dominate the exploration sector in 2015. A research article earlier this week by SNL Metals & Mining'sRobert Anders noted that the sector continues to be dominated by companies basedin Canada and Australia.

As documentedin SNL's Corporate Exploration Strategies(CES) report, companies headquartered in Canada and Australia accounted for 78%of the 1,798 companies with exploration budgets of over US$100,000 last year. Muchof the exploration activity was within those two countries, and projects in Canadaand Australia together accounted for 48% (US$4.21 billion) of the US$8.77 billionallocated globally to exploration in 2015.

Canadiancompanies continued to lead the exploration ranking, accounting for nearly 32% ofthe global exploration budget in 2015. Companies headquartered in Australia camesecond, accounting for just over 16%, and Latin American companies held third place,accounting for almost 12% of the total.

Muchof Canada's exploration expenditure is on local targets — the 814 Canadian companieswith significant exploration budgets last year allocated 35% of their total budgetto domestic exploration. Canadian companies allocated over 62% of their budgetsto gold exploration, and accounted for 44% of the global gold exploration budget.

Accordingto the CES report, Canada's 745 junior explorers accounted for 47% of the globalexploration budget by Canadian companies, with 54% of their planned spending allocatedto gold. The juniors directed 60% of their budgets to late-stage exploration andfeasibility work, and grassroots programs received just 28%.

A totalof 592 Australian companies budgeted US$1.42 billion in 2015 (about 16% of the globalbudget). About 56% of their spending was devoted to domestic exploration, with thesearch for gold and base metals accounting for 43% and 38%, respectively, of thedomestic total. Australia's 545 juniors budgeted US$836.7 million for explorationin 2015, representing 59% of the total from Australian companies.

LatinAmerican companies traditionally focus their exploration efforts close to home.The region's share of global exploration budgets fell below 8% in 2011, but haverisen steadily since then and captured almost 12% of the global budget last year.However, although the global share was higher, the actual amount was down 19% yearon year.

The Canadiangovernment led by Prime Minister Justin Trudeau is understandably keen to maintainthe country's exploration status. In its first budget, Trudeau's new administrationsignaled March 22 a one-year extensionfor the Mineral Exploration Tax Credit. The METC will remain at 15%, at an estimatedcost to the federal government of C$20 million in revenue. The government also promisedfunds to bolster Canada's environmental assessment agencies.

For therest of us, it's perhaps best to sit tight and count our bricks, while waiting formetals demand to catch up with chocolate demand. One, two …