A report released late last year suggests that half of Australia's non-bulk commodities mines will be exhausted within the next 7 to 18 years. Non-bulk commodities include gold, copper, zinc and lead, and exclude iron ore and coal.
Based on current rates of production, reserves and resources and in the absence of new discoveries and mine extensions, the Centre for Exploration Targeting (CET), estimates that the sustainability of the Australian non-bulk mining industry is in trouble, thanks mainly to falling exploration.
The mines include the Century zinc mine, previously owned by Oz Minerals (ASX: OZL), Regis Resources' (ASX: RRL) Moolart Well, Saracen Minerals' (ASX: SAR) Carosue Dam and Alacer Gold Corp's (ASX: AQG) Higginsville gold mine.
CET is a partnership between the University of Western Australia, Curtin University of Technology the Western Australian government and Industry. CET reports that Australia's share of global exploration has virtually halved from its peak of 21% in 2002 and now stands at around 12%, while that of Canada has increased from 14% to 18% over the same period.
Exploration expenditure is vital to find new deposits and extend the life of existing mines, but data from the Australian Bureau of Statistics (ABS) indicate that expenditure has fallen for all states and for all commodities, and continues to trend down. CET also identifies another concern, which is the significant fall in drilling, particularly for new deposits. As CET says "if you don't drill, you won't discover".
A reduced rate of discovery may result in Australia's resources becoming depleted, and the mining industry unsustainable in the long run with potentially serious economic consequences.
CET has also suggested that Australian based resource companies now devote about half their funds to exploring abroad, and junior miners are increasingly finding it difficult to raise capital. With those junior explorers accounting for over half of all exploration expenditure in Australia, failure to raise funds means less exploration, less drilling and a fall in the number of new mines. That is already noticeable, particularly with the number of medium and large discoveries falling in the last few years.
The introduction of the Minerals Resource Rent Tax (MRRT) has also been blamed for making investment in exploration within Australia unattractive.
Foolish takeaway
MinEx Consulting estimates that 20 of Australia's major mines could close within the next 5 years, unless they slow production, or extend the mine life by finding new resources or expand existing reserves. That means more capital needs to be spent on exploration and drilling, but the current trend is falling expenditure, which raises serious concerns over the future of the Australian mining industry.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in Saracen.
