Claire Leow and Tan Hwee Ann, Bloomberg
Singapore/Melbourne: BHP Billiton Ltd, the world’s largest miner, and rivals may spend more in 2007 on exploration than last year’s record $7.13 billion (Rs30,86,377 crore) to search for metals in Asia and Africa as Chinese demand depletes existing mines.
Miners will boost budgets again this year, after increasing expenditure by 40% in 2006 from a year earlier, said Jason Goulden, director of corporate exploration at Metals Economics Group, a research company. Spending in 2002 was $1.9 billion.
Decades of underinvestment in mines, and a Chinese economy that has doubled in size over the past decade means BHP and rival Rio Tinto Group can’t deliver enough copper and nickel to meet demand. Miners are heading to new territories in Mongolia, Indonesia and Congo, seeking what Rio Tinto’s Chief Executive Officer Leigh Clifford has called “world-class deposits.”
“New exploration in regions traditionally perceived to have higher political risk has been the hallmark of the current exploration cycle,” Goulden said 22 March from Nova Scotia, Canada. “We expect this trend to continue in 2007 as the ongoing struggle to replace reserves makes exploration in emerging markets the norm.”
Metal prices have rallied for five years, sending copper to a record $8,800 a ton last May and nickel to an all-time high of $48,500 a ton this month. Prices of iron ore, used in steelmaking, have jumped five straight years to a record.
“The prevailing need at the moment is to find more resources,” said Tim Rocks, strategist at Macquarie Securities Ltd, on 23 March. “Companies are being forced to go to wherever they can.”
Rocks, whose current stock recommendations include majors Rio Tinto, the world’s third-largest miner, and BHP Billiton, is set be among participants at the Asia Mining Congress, which opens today in Singapore.
The three-day event is scheduled to hear from Bret Clayton, chief executive for copper at Rio Tinto, on the company’s expansion into Mongolia at Oyu Tolgoi, a deposit 80 kilometers (50 miles) from the border with China.
Rio Tinto, based in London, raised exploration expenditure 31% last year to $345 million and “almost every continent is of interest,” said spokesman Ian Head. Rio and BHP Billiton last year agreed to look for minerals in Russia. Rio also sent a team to Congo’s Katanga region, host to a tenth of the world’s copper reserves, Credit Suisse Group said 21 March.
BHP expects to find a “strong opportunity” in Siberia, and Russia is a place the company needs to be “to learn our way into operating in an environment like that,” said Chief Executive Officer Charles ‘Chip’ Goodyear on 7 February.
BHP, based in Melbourne, is raising exploration expenditure on minerals by 19% to $350 million for the year ending 30 June, from a year ago, according to spokeswoman Emma Meade.
Miners are spending more in Africa, China and Mongolia, where the chances of finding new deposits are better than in Australia, Canada and the Latin America, which are “more well- explored,” said Metals Economics Group’s Goulden.
Still, finding deposits doesn’t mean companies can successfully open mines. Rio Tinto has said a possible $2 billion investment in an Indonesian nickel mine is dependent on winning a government accord.
The Southeast Asia country’s parliament is debating a law that will change the industry’s contractual framework, giving local governments more say in mine investments. The government may also propose a ban or limit on exports of unprocessed ores.
No new mines have opened in the country in recent years, said Wayne Spilsbury, general manager for exploration at Vancouver-based Teck Cominco Ltd, the world’s second-largest zinc producer. Spilsbury is also set to address the Singapore conference.
Newmont Mining Corp., the world’s second-largest gold miner, is awaiting a verdict 4 April from a district court in Indonesia on whether a now-closed gold mine in North Sulawesi polluted a bay with arsenic and mercury.
The Denver-based company, which also operates a $3.6 billion copper and gold mine in Sumbawa, eastern Indonesia, has denied the charges. US citizen Richard Ness, president- director of a local Newmont unit, may be sentenced to three years in jail if convicted.
“We are in a period, as in the 1960s and 1970s, when Japan was industrializing and demanding commodities, and the same thing is happening now in China and India,” said Teck Cominco’s Spilsbury. “The difference between now and then, in terms of mining, is the scale of it.”