exploration boom

In case you've missed all the helicopters, job ads and groundtruthers in the Yukon last summer, the bar tabs racked up around town during last week's Geoscience Forum confirm it: there's an exploration boom in the Yukon. It's a global phenomenon.

In case you’ve missed all the helicopters, job ads and groundtruthers in the Yukon last summer, the bar tabs racked up around town during last week’s Geoscience Forum confirm it: there’s an exploration boom in the Yukon.

It’s a global phenomenon. Metals Economics Group tallied up exploration budgets at 2,400 mining companies and estimates global nonferrous metals exploration will be $18 billion in 2011.

Yes, that’s billions with a “b” and it doesn’t even include people looking for iron ore, aluminium, coal, oil or gas.

It’s around 50 per cent higher than 2010 and handily beats the pre-crisis peak in 2008.

That $18-billion figure is interesting to think about. Basically it means the human race has deployed a small army to scour the planet for metal. And this isn’t just grizzled geologists tapping rocks with hammers. This army is using some of the most advanced technologies ever invented, from seismic reflection to directional drilling deep into the planet’s crust to towing magnetic anomaly detectors under helicopters.

Here in the Yukon, exploration budgets for 2011 are estimated to top $250 million (and may end up blowing that number out of the water once they are all tabulated). That tops 2010’s figure of around $150 million, which was a record itself.

It’s hard to say exactly how many jobs that created, but big chunks of the $250 million likely flowed into literally thousands of wallets in the Yukon.

Most people have big plans for next year too. I talked to one geologist at Geoscience who drilled dozens of holes this year and still didn’t find where his deposit ended. That’s exciting stuff, both for geologists and their investors.

However, exploration budgets can be extraordinarily volatile. In 2002, global exploration spending was around $2 billion, a tenth of current levels. And global market conditions can have a critical and very rapid impact. In 2009, as the Lehman and AIG debacles shook global markets, exploration fell around 40 per cent from the year before to less than $9 billion. Exploration budgets are fast and easy for CFOs to slash if a mining company is worried about cash.

This is worth remembering now as the European debt crisis spirals further out of control each week. Germany had a disastrous government bond auction last week, and if people aren’t buying German debt then no country in Europe is safe. Fund managers and investors watching their European investments get hammered are less likely to their brokers to ask how they can invest more in junior Yukon mining companies.

To put this in perspective, the Toronto Stock Exchange and its Venture arm saw 4,413 mining equity financing deals in 2010, which raised $17.8 billion in new money for mining companies. This was about 60 per cent of the global mining total. If trends from January to October of this year continue, the comparable figures for 2011 would be 2020 deals raising $13.1 billion.

Perhaps the last months of the year will have big numbers, or maybe global financial worries will further choke the deal flow. But if mining companies find it harder to raise money, exploration spending will go down, possibly sharply. Then it will be a question of where exploration gets cut.

A recent survey of Yukon mining CEOs by the Yukon Chamber of Mines and Deloitte, a global audit and consulting firm, highlighted how mining bosses value the Yukon’s geology, regulatory regime and relative political stability (for some reason, we didn’t score as well on “climate”). Hopefully these advantages will lead the capital markets and mining companies to cut in Mongolia and New Guinea, if they have to, instead of the Tintina Trench. But each mining property and each company will be different.

It is also reassuring from a job creation and royalty revenue point of view that each year more Yukon mining projects move closer to production. As geologists understand their rocks better and managers refine the business cases, risk falls. It becomes easier to get funding and the project is more likely to survive a downturn than more speculative, early stage projects.

The exploration and mining boom worries some. Environmental groups ran a major ad campaign during the election campaign with catchy slogans like “My Yukon Floats when Mining Sinks,” and these clearly resonated with many Yukoners. Lots of people have “Protect the Peel – Let’s Vote on It!” bumper stickers on their vehicles (which, as miners will point out to you, are made of metal).

The “Let’s vote on it” slogan turned out to be prescient, but not in the way environmental groups were hoping. The solid Yukon Party majority means strong government support for mining as the projects currently in the pipeline move towards production.

It’s hard to forecast how many mine projects might make it to production. Deloitte’s report estimates 11 operating mines in the territory by 2018, with a total construction phase capital investment of over $5 billion during the 2011-2018 period. That’s a big increase from no producing mines at all a few years ago.

A mining sector of this size presents major opportunities for Yukon businesses, workers and governments. But it also presents risk, both environmental and economic.

The challenge for Yukoners now will be to avoid the classic resource boom-and-bust scenario, and make sure that the YESAB-focused permitting process we have so painstakingly built over the last decade produces a set of mines that are sustainable from a financial, job creation and environmental point of view.

Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s adventure novels.