WORLDEXPLORATIONTRENDS

A Special Report from SNL Metals & Mining for the PDAC International Convention

2016

Throughout 2015, deepening concern overthe global economy hammered the resources sector. January 2016 started just as badly when more than US$2,300 billion was wiped off global stocks in the first full week. Despite a robust jobs report in the U.S., investors were spooked by China’s slowing economy, depreciation of the renminbi and the collapsing oil price, lowering the mining industry’s aggregate market capitalization to levels not seen since early 2009.

Results from SNL Metals & Mining’s 26th edition of the Corporate Exploration Strategies reports clearly show that the global exploration sector has fared no better, with the mining industry’s total budget for nonferrous exploration falling 19% to $9.2 billion in 20151. With depressed metals prices and weakening Chinese demand, combined with strong metal production and high levels of political turmoil, investors are shunning the mining industry, leaving most explorers with little option but to further curtail spending.

WORLD EXPLORATION TRENDS

1 SNL Metals & Mining obtains the data used in the Corporate Exploration Strategies (CES) studies through the generous cooperation of the surveyed companies. The individual nonferrous exploration budgets covered by the study include spending for gold, base metals, platinum group metals, diamonds, uranium, silver, rare earths, potash/phosphate and many other hard-rock metals. They specifically exclude exploration budgets for iron ore, coal, aluminum, oil and gas, and many industrial minerals.

(All figures are reported in U.S. dollars; all historical exploration figures throughout this report represent dollars of the day and have not been adjusted for inflation.)

“

”

The PDAC is pleased to partner again with SNL Metals & Mining in making this special report on global exploration and industry trends available to members and Convention 2016 delegates. During these challenging times, SNL Metals & Mining’s services are key to understanding global exploration trends, which helps us to support our members through the development of programs, policy recommendations and advocacy. Acknowledged as a leader in providing comprehensive information, expertise and analysis to the mining industry, SNL is also the premier source for exploration statistics worldwide.

Andrew CheatleExecutive DirectorPDAC

3

World Economy PrecariousWall Street has an adage: “As goes January, so goes the year.” Unfortunately, this January was extremely difficult for global markets generally and for mining specifically. In the first full week of 2016, the S&P 500 index fell 5%, despite initially climbing on the announcement of a better-than-expected extra 292,000 jobs in the U.S. during December. The FTSE All-World Index lost 5.6% — the worst five-day start to a year since the index was created in 1994, and the worst week overall since 2011.

Nevertheless, Morgan Stanley signaled a “year of respite,” saying it expected “only a modest abatement in China-led commodity demand growth, not the capitulation that year-to-date price performances imply.” However, Morgan Stanley’s economists lowered China’s GDP growth outlook to 6.7% and 6.6% for 2016 and 2017 respectively, with “risks tilted to the downside.”

Speaking at the World Economic Forum in Davos in January, Professor Kenneth Rogoff of Harvard University warned that the world economy is precariously balanced between continued recovery and a third leg of the global financial crisis. International Monetary Fund chief economist Maurice Obstfeld agreed, saying there is a “difficult adjustment ahead in emerging markets.”

The markets took note and global equity markets were routed, with the FTSE All-World index falling into “bear market” territory on January 20 as oil prices slid below US$27/bbl for the first time since 2003. Investors fled for the safety of government bonds, and equities in the U.K., France and Japan fell to more than 20% below their 2015 high (the common definition of a bear market).

By the end of the Davos meeting Moody’s had formally put 120 energy companies and 55 mining companies “under review.” It cited lower commodities prices due to China’s economic slowdown for its decision, which focused on energy companies following the 75% fall in oil prices since the peak of US$115/bbl in mid-2014.

International equity prices recovered after the European Central Bank signaled a new round of monetary stimulus. ECB president Mario Draghi confirmed that more quantitative easing is “on the table.”

Markets rose further at the end of January, helped by firmer oil prices and the Bank of Japan’s surprise adoption of negative interest rates. Nevertheless, by February the FTSE All-World index was down 7% year-to-date.

The late January recovery was welcome after investors’ recent low valuation of the mining industry. Figure 5 on p.10 illustrates the industry’s amalgamated market capitalization, which had fallen to US$874 billion by the end of December (based on almost 2,600 listed companies). The industry’s value nevertheless still fell below $800 billion by the end of January. The January performance is worrying, as the S&P Dow Jones index has fallen for the rest of the year after a poor January in almost three-quarters of the years since 1929.

Bear MarketsSociété Générale analyst Albert Edwards, a notorious bear, warned in January of “global deflation and recession.” He predicts that U.S. stocks could lose almost three-quarters of their value as an indirect result of “the failure of the Fed’s quantitative easing.” He argues that investors will “reap

Five-Year Prices

36,500 3,200

26,000 2,200

! ! ! ! ! !

15,500 1,200

5,000 200

2011 2012 2013 2014 2015

Nickel (US$/t)

Aluminum (US$/t) Zinc (US$/t)Gold (US$/oz)

Left scale:

Right scale:

!! ! ! ! !

2011 2012 2013 2014 2015

Coal* (US$/t)Left scale:

Right scale:

*Thermal; 6,000kcal/kg; 50mm; FOB Richards Bay

Copper (US$/t)

Iron Ore (62% Fe, fines, CFR Tianjin; US$/t)

220

180

140

100

60

20

11,000

9,200

7,400

5,600

3,800

2,000

4

the whirlwind” of central bankers’ attempts to support their economies with looser monetary policy.

Another Société Générale analyst, Robin Bhar, noted in mid-January that the negative developments in the financial markets were exacerbated by geopolitical tension. Bhar expects worries over China and the emerging markets to place severe pressure on base metals prices in the current quarter. Further price weakness, he said, should provoke a stronger supply response, eventually leading to a modest recovery. Bhar expects prices to recover gradually over the next two years, based on positive demand trends and reserves depletion that would eventually return the markets to deficit.

Given the existing project pipeline, base metals mine production (with the exception of bauxite) is likely to peak around 2018. Bhar predicts that “output would then decline at an accelerating pace, unless higher prices stimulate investments and incentivize output from higher-cost projects.”

World Bank ViewAt the end of January, the World Bank published its latest Commodity Markets Outlook, in which it predicts a further 10% decline in metals prices this year due to “stubbornly elevated” metals supplies.

The World Bank’s projections follow an 8% fall in metals prices in the December quarter, which it blamed largely on slower growth in China’s economy and an overall increase in mined material. The Bank’s commodity price index fell 21% in 2015, ending the year 55% below the February 2011 high.

The World Bank expects iron ore to suffer the most. Prices are slated to fall another 25% in 2016, and to sink further if China’s economy slows more than anticipated and/or production is higher than expected.

Copper is also expected to fall on projected weaker Chinese construction and new supply coming online. For copper prices to improve in 2016, more significant mines may need to close, the World Bank said.

2015 Reviewed

Last year was tough on the seven major mined commodities. Iron ore and nickel prices were around 40% lower over the year; zinc, copper and coal fell more than 20%; aluminum was down over 17% and even gold (traditionally a safe haven) was down almost 10%, albeit as measured in the strong U.S. dollar.

The end of the year was positive, however, for most mined commodities — especially iron ore, which gained almost

11% over the last ten trading days. Iron ore closed the year at almost US$43.6/t, compared with the December 11 low of US$38.3/t. The exceptions in the last week were gold, down 0.7% at US$1,060/oz (for a 2015 average of US$1,161/oz), and aluminum, down 1.8% at US$1,513/t.

The coal miners suffered more than most in 2015; the Dow Jones Coal Index (of 235 companies) ended the year 79% lower than it started, with an aggregate market cap of US$190.4 billion.

An article by Satyajit Das in the Financial Times argued that 2015’s price declines were exacerbated by the increasing conversion of commodities into tradeable equivalents. Das wrote “A Banquet of Consequences” (published in the U.S. as “The Age of Stagnation”), wherein he notes that cash flow from future metals sales has been monetized to raise debt to finance expansion. The need to service this debt has kept production levels artificially high.

Trade on the London Metal Exchange fell 4.3% in 2015 to 169.6 million lots, equivalent to 3,800 Mt, with a value of US$11,900 billion. The LME’s owner, Hong Kong Exchanges and Clearing Ltd., reported that 2015 trade in aluminum contracts in fell 9.1% to 62.5 million lots, with contracts for A-grade copper nearly flat year on year at 41.0 million lots. Trade in tin slumped 30.7%, zinc fell 5.7% and lead slipped 0.9%, compared with 2014. In contrast, nickel trade jumped 6.9% to a record 20.7 million lots.

Mining saw one of its worst years in 2015, but it was a record year for mergers and acquisitions. Deals for the year exceeded US$4,600 billion, surpassing the previous M&A peak of US$4,300 billion in 2007. Analysts explained the surge as being driven by the hunger for growth, coupled with cheap funding.

Reviewing 2015 in the Financial Times, Gavyn Davies commented that although some major trends last year were obvious in retrospect (weak oil prices, falling euro, rising dollar, tumbling emerging currencies), many macro investors failed to navigate the sharp reverses in time.

Davies noted the relative strength of global equities in 2015, with local currencies returning about 2%. However, with gains just under zero in U.S. dollar terms, the peaks of May 2015 were not re-attained.

Commodity prices plummeted almost one-third overall, and eventually took credit markets down with them. The falling prices also hit emerging markets (with the perplexing exception of Chinese equities, the best-performing of the major markets), which generally underperformed developed-market assets.

5

Exploration Budgets Fall at Slower PaceMining companies responded to these market headwinds with continued reductions in their exploration activities. The result was an 19% decline in worldwide nonferrous metals exploration budgets in 2015, compared with the previous year. Combined with SNL Metals & Mining’s estimates of budgets that it could not obtain, the mining industry’s total budget for nonferrous metals exploration was US$9.2 billion in 2015, less than half the record US$21.5 billion budgeted in 2012.

The steep plunge in exploration budgets over the past few years reflects increasing investor wariness of the entire mining sector, which has made it difficult for most junior companies to raise funds, and for producing companies to justify intensive capital and exploration spending plans. Throughout 2015, negative price outlooks further forced producing companies’ hands, leading many to sell off assets, shutter operations and focus on companywide cost savings.

SNL’s 2015 global exploration budget calculation was based on information collected from more than 3,500 mining and exploration companies worldwide, of which almost 1,800 had exploration budgets reported in the CES study. These companies (each budgeting at least US$100,000) together allocated US$8.77 billion for nonferrous exploration, which SNL estimates covers 95% of worldwide commercially oriented nonferrous exploration spending.

Although iron ore exploration remains outside the scope of the CES, and is not included in the analysis throughout the remainder of this report, SNL began coverage of iron ore explorers in 2011 (surveying companies for their total ferrous budgets beyond the core CES targets).

Including the allocations by a number of pure iron ore producers and explorers that were not otherwise part of the study, SNL compiled a total exploration budget of US$939 million for iron ore in 2015, down from US$1.44 billion in 2014, US$1.74 billion in 2013 and US$2.89 billion in 2012. Aggregating the iron ore budgets with the budgets for the other commodities covered by the CES, the total 2015 exploration budget rose to US$9.71 billion, of which almost 10% is attributable to iron ore.

World Exploration TrendsSNL’s estimate of annual nonferrous exploration allocations since the early 1990s, relative to a weighted annual metals price index, is shown in Figure 1. The graph indicates the cyclical nature of exploration investment, and the correlation between metals prices and exploration spending, typically with a one-year lag.

0

1

2

3

4

5

$0

$4

$8

$12

$16

$20

$24

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Indexed Metals P

rice (1993=1) Non

ferr

ous

Exp

lora

tion

(US

$B)

Nonferrous Exploration Total SNL Indexed Metals Price

Through the early 1990s, the aggregate nonferrous exploration budgets reported by included companies steadily increased to peak at US$4.67 billion in 1997. As metals prices slumped in the following years, a combination of substantial cutbacks and mergers by the majors and a loss of funding for a great number of juniors caused exploration budgets to decline for five consecutive years, to a 12-year low of US$1.77 billion in 2002 — an overall decline of more than 62%.

The initial increase in worldwide exploration budgets from 2002’s low was due to a combination of higher gold prices and rising investor interest that revived the junior sector, increased spending by the majors as they recognized the dearth of new projects moving up the pipeline and significantly reduced consolidation at the top of the industry. The emergence of China’s appetite for resources led to a multiyear bull run that sent the worldwide exploration budget total to a new high of US$13.75 billion in 2008 — an almost eightfold increase from the bottom of the cycle six years earlier.

The mining industry’s boom years came to an abrupt halt in September 2008, as the world fell into the worst economic downturn in decades. The resulting US$5.77 billion (42%) drop in exploration spending in 2009 from 2008’s high was the largest year-on-year decline, in both dollar and percentage terms, since SNL began producing the CES in 1989.

Most metals prices bottomed in early 2009, and the industry recovered much more quickly than predicted. The global economy improved markedly through 2009 and 2010, and with it metals prices, most of which traded well above their long-term averages through 2011. In response,

Figure 1: Estimated Global Nonferrous Exploration Budgets, 1993-2015

6

most companies aggressively increased their exploration budgets, lifting the industry’s budget total by 44% in 2010 to US$11.51 billion, and by a further 50% in 2011 to US$17.25 billion.

Marking a transformational year, 2012 began with most metals prices at or near recent highs, relatively strong investor interest in the mining sector and signs that the industry was enjoying a return to the boom times of 2007-08. Exploration budgets increased 19% in 2012, setting a new all-time high of US$20.53 billion. Beginning in April of that year, investors became increasingly wary of the junior sector, causing many companies to struggle to raise funds for their ongoing programs and forcing them to cut actual spending below their budgets for the year.

Throughout 2013 and 2014, markets were even less willing to support junior companies, and producers pulled back on capital and exploration spending in order to strengthen financial margins. As a result, the industry’s total exploration budget fell to US$14.43 billion in 2013 and to US$10.74 billion in 2014, down almost 48% from the 2012 peak.

Unfortunately, 2015 did not see the start of the meaningful recovery that many had been hoping for. Despite five interest-rate cuts since late 2014, and additional measures designed to stabilize domestic markets or stimulate growth, China’s economic slowdown has continued, dragging many resource-based economies down with it. Given the uncertain demand, virtually all metals prices were in full retreat throughout 2015, ensuring that the downturn in exploration continued. In 2015, companies lowered their budgets by another 18% to US$8.77 billion, marking the first time aggregate budgets had fallen below US$10 billion since the 2008-09 crash.

Regional ExplorationExploration allocations for all regions declined in 2015, with the greatest dollar reductions in Africa and Latin America. Nevertheless, the latter remained the most popular exploration destination, attracting 28% of global spending in 2015. Six countries — Chile, Peru, Mexico, Brazil, Colombia and Argentina — accounted for the lion’s share of the region’s total.

Gold reclaimed its position as the top Latin American exploration target, with its share of overall budgets rising to 42% from 41% in 2014. The percentage allocated to base metals decreased to 40% from 42%.

SNL’s Rest of World regional grouping (Europe and most of Asia) had the second-largest aggregate budget, led by allocations for China and Russia, and by two other countries — Turkey and Kazakhstan — that each attracted more than

US$70 million in exploration budgets in 2015. For the fourth time in five years, China was in the top position with 32% of total allocations. Gold replaced base metals as the region’s top target, led by major allocations for China and Russia.

Africa remained in third place for a third year, attracting 14% of worldwide budgets; with the largest percentage decrease (30%) of all regions in 2015, the amount separating it from the Rest of World category increased from US$336 million in 2014 to US$480 million. Major African exploration destinations included Democratic Republic of Congo (DRC), South Africa, Burkina Faso, Zambia and Ghana. Allocations for gold were down 27%, raising the metal’s share of overall African budgets to 43% from 41%. Budgets for base metals fell 39%, led by lower allocations for DRC.

Canada remained in fourth place with about 14% of worldwide allocations. Ontario accounted for one-quarter of Canadian exploration budgets, followed by Quebec with 17%. Gold exploration was down by just US$87 million, raising its share of total expenditure to just over 50% from 46%. Planned expenditures for base metals were down 26%, lowering their percentage of overall budgets to 17% from about 19%.

Australia was in fifth place, where it has been since 2004, with a 2015 budget of US$1.07 billion and 12% of the total. Its allocations are down 15% (the third-largest decrease among the regions) from 2014, shrinking its distance behind Canada from US$233 million to US$117 million. However, after factoring in iron ore budgets, Australia continues to be the top destination by country.

Western Australia was again by far the most popular Australian state for exploration, with 60% of the country’s total. Gold remained the top exploration target, and with allocations actually rising by US$400,000, its share of overall spending was up to 48% from 41% in 2014.

Gold and copper exploration in the U.S. kept the country in sixth place regionally, ahead of the Pacific Islands. The U.S. had the smallest percentage decrease (6%) of all regions in 2015, increasing the gap between it and the Pacific/Southeast Asia region to US$288 million from US$162 million in 2014. Nevada had the largest share (about 42%) of the country’s 2015 budget total, and three states — Nevada, Arizona and Alaska — together accounted for 67%. Gold remained the preferred exploration target; although allocations dropped just 9%, the metal’s share of overall U.S. budgets fell slightly to 58% from 60% in 2014. Base metals allocations actually rose 5% year on year, increasing their share of the total to 31% from 28%.

7

14%

12%

7%

8%

7%

6%

6%

6%

5%

5%

Pacific/SE AsiaPacific/SE Asia 5%West AfricaWest Africa 5%

ChileChile

Other Latin AmericaOther Latin America

FSUFSU

RussiaRussia

CanadaCanada

PeruPeruBrazilBrazil

EuropeEurope

United StatesUnited StatesChinaChina

AustraliaAustralia

MexicoMexico

Southern AfricaSouthern Africa 4%

3%DRCDRC 2%

East AfricaEast Africa1%

1%

P a c i f i cO c e a n

A t l a n t i cO c e a n

I n d i a nO c e a n

Other locations account for 3%

Map 1: Top Destinations for Nonferrous Exploration, 2015

50

75

100

125

150

175

$0

$250

$500

$750

$1,000

$1,250

2008 2009 2010 2011 2012 2013 2014 2015

SN

L Indexed Metals P

rice (May 2008=100)

Am

ount

Rai

sed

(US

$M)

Gold Financings Base/Other Metals Financings SNL Indexed Metals Price

Figure 2: Significant Exploration-Related Financings by Juniors, 2008-15

Note: Exploration-related financings include financings by junior companies of US$2 million or more, where the company indicated that all or most of the proceeds were for exploration. Proceeds used primarily for acquisitions, development or debt servicing/repayment are excluded. The financing data only covers precious and base/other* metals, which account for most of the exploration spending covered by the CES report.

Figure 3: Significant Gold and Base/Other Metals Drill Results, 2008-15

Note: SNL Metals & Mining’s Monthly Industry Monitor tracks significant precious and base/other metals drill results monthly from 2008 onward, as reported in SNL’s online database. Significant drilling includes initial finds, new zones or satellite deposits, and extensions to existing mineralization – essentially any drilling that adds to the resource potential of a particular project or deposit.

$0

$250

$500

$750

$1,000

$1,250

0

40

80

120

160

200

2008 2009 2010 2011 2012 2013 2014 2015

Am

ount Raised (U

S$M

)

Num

ber o

f Ann

ounc

emen

ts

Significant Gold Results

Significant Base/Other Metals Results Total Financings for Exploration

* In this report and the Industry Monitor publication, silver and PGMare included in the Base/Other Metals category to allow a clearpicture of the unique trends in gold exploration.

8

Juniors’ Struggle Reflects Market RealityRarely immune to the traditional boom-and-bust mining cycle, junior companies continue to face considerable near-term uncertainty, with the past decade chronicling the rise and fall of the sector. A decade ago, junior companies were well placed to benefit from China’s growing appetite, buoyed by investors that were keen to capitalize on rising metals prices. The juniors’ share of the global exploration budget peaked in 2007 at 55%, before the 2008-09 financial crisis lowered the group’s share to 40% in 2009. Market conditions recovered much more quickly than most analysts anticipated, allowing many juniors to secure strong support from investors in 2010-11.

By the middle of 2012, however, investment in mining had become increasingly scarce, forcing many juniors to curtail programs in the last half of the year. No longer buoyed by a rising gold price, the juniors’ access to capital continued to evaporate in 2013, lowering the amount raised by the sector for exploration to levels not seen for a decade. Despite a modest increase in the funds raised through the first three quarters of 2014, a dismal December quarter marked the beginning of an extended drought in exploration financings that has continued into 2016.

Efforts to ward off the junior sector’s collapse remain robust, with various industry organizations pushing hard for government and investor support. Canada’s PDAC continues to lobby for a number of fiscal policy tools to help offset the deficit of infrastructure in the country’s prospective north, including new tax incentives and the creation of a Northern Infrastructure Bank. Despite the 2014 adoption of the Exploration Development Incentive, many Australian juniors remain vulnerable to the lack of equity market support, with the Association of Mining and Exploration Companies advocating for improved State and Federal initiatives designed to enhance access to exploration opportunities and funding.

While many junior companies have been able to survive on minimal funding, an increasing number have moved out of the sector by leveraging opportunities in existing or emerging non-mining industries. With any future upward shift in market sentiment likely to be gradual and uneven, it could be some time before the juniors derive any practical benefit. SNL therefore projects a further decline in junior explorers’ aggregate budget total for 2016.

Drilling SteadiesDespite the troubles facing the junior sector, the number of active projects with drilling activity has remained surprisingly stable over the past two years, suggesting that some

0

10

20

30

40

50

$0

$25

$50

$75

$100

$125

M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D

2008 2009 2010 2011 2012 2013 2014 2015

Num

ber of Announcem

ents Valu

e of

Res

ourc

es (U

S$B

)

Value of Initial Gold Resources

Value of Initial Base/Other Metals Resources Number of Initial Resources

Figure 4: Initial Resource Values, 2008-15

Note: SNL’s Monthly Industry Monitor has tracked significant precious and base/other metals initial resources monthly since 2008. The database includes initial estimates for both new deposits and new zones. For this graph, and in the Industry Monitor service, silver and PGM results are included with the base/other metals to allow a clear picture of the unique trends in gold exploration.

companies are capitalizing on lower drilling costs to continue small programs at their most promising assets. In addition, Figure 3 illustrates that the number of reported significant drill results from this activity has also remained well above the levels reported in 2008-09, despite a dearth of equity financing. Regardless of this stability, SNL Metals & Mining believes the continued lack of funding will translate into lower exploration activity in 2016.

As presented in SNL Metals & Mining’s quarterly State of the Market report, exploration drilling by primary project commodity has shifted since 2012, with the annual number of active copper and gold projects falling by 23% and 31% respectively in 2015 from 2012 levels — contributing to the 25% fall in the total number of active projects. Bucking the trend, active drill programs at zinc-lead projects increased by 27%, while the number of nickel projects more than doubled over the past four years.

Explorers have also shifted their geographic focus in recent years. Whereas Canada and the United States led the number of active projects at the peak of the cycle four years ago, their number of active projects fell by more than one-third by 2015; Latin America and Africa fared even worse, with each region having about half the number of drilled projects in 2015. Conversely, the number of drill programs at Australian projects jumped by more than half from 2012 to 2015, despite suggestions that the overall number of meters drilled fell.

9

As documented in CES, exploration budgets have been shifting away from grassroots work since the 1990s, and the current downturn has only amplified this trend. With risk aversion now paramount, companies have been refocusing their drill activities on existing or new operations to ensure an adequate level of reserves. The continued decline in investor funding for early-stage exploration is impacting the industry’s medium- and long-term supply pipeline, which will make it difficult for the sector to respond when demand begins to rise.

Plunging Initial ResourcesWith exploration drilling at earlier-stage assets declining, the disappointing number of initial resource announcements comes as little surprise. As Figure 4 demonstrates, the number and value of initial resources peaked in 2008 and again in 2012; the steep decline after the 2008-09 financial

Map 2: Location of Significant Gold and Base/Other Metals Drill Results, 2015

P a c i f i cO c e a n

A t l a n t i cO c e a n

I n d i a nO c e a n

Primary commodityCopper Gold Lead and zinc Nickel Platinum Silver Other

crisis has been surpassed by the low numbers of new deposits announced over the past three years.

Persistent uncertainties, financing difficulties and cutbacks on drill programs targeting new mineralization resulted in the announcement of only 44 initial resources in 2015, compared with 50 in 2014 and 168 in 2012. According to SNL’s methodology, the value of 2015’s initial resource announcements was US$103.2 billion, down 21% from US$130.6 billion in 2014, which in turn was well short of the US$366.5 billion valuation achieved in 2012. Map 5 illustrates the in-situ value and global distribution of the 27 gold and 17 base/other metals initial resource announcements in 2015, with gold projects in Canada and a copper project in Russia (Malmyzh) accounting for almost two-thirds of the total in situ value.

10

Significant Project MilestonesSNL also monitors project “milestones.” Positive developments include the opening of mines, favorable project decisions and the initiation of feasibility studies. Negative milestones include stalled feasibility work, cancelled expansions and mine closures.

There were 54 positive milestones in 2015, compared with 96 in 2014 and 389 in 2010. Despite fewer project advancements in 2015, the dollar value of these positive milestones rose slightly to US$1,334 billion, up from US$1,245 billion in 2014 but down significantly from US$8,959 billion in 2010. In 2015, there were a total of 44 negative milestones, valued at US$1,278 billion. This compares with a total of 27 negative milestones in 2014, valued at US$752 billion.

As shown in Figure 6, the industrywide pullback from exploration spending has dramatically slowed or postponed the positive advancement of many projects. With the further production cuts expected throughout 2016, and the resulting decreased pressure to replace reserves, SNL does not foresee much improvement in project advancement efforts before 2017.

Pipeline Trends

SNL’s Pipeline Activity Index (PAI) is a valuable measure of exploration and development activity in the international mining industry. It incorporates data on the number of projects where significant drill results have been announced, initial resource statements, exploration financings and positive project milestones. The PAI slumped in mid-2015 to reach the year’s low of 41 in April — slightly better than the all-time low of 40 in April 2014. The index rebounded to 69 in November 2015, but then fell off sharply in December to end the year at 49 (see Figure 5).

Figure 5 plots the PAI against SNL’s indexed metals price and the market capitalization of listed companies in the SNL Metals & Mining database. The number of qualified companies decreased to 2,594 at the end of December, and the industry’s total market valuation fell in each of the final three months of 2015.

By the end of 2015, the mining industry had a total market capitalization of US$874 billion, one-third less than at the end of 2014 and down 64% from US$2,415 billion in April 2011. Of the latest valuation, 86% was contributed by the largest 100 companies. As noted earlier, the industry’s market standing suffered further setbacks in January, falling below US$800 billion.

Looking Forward

A third consecutive year of industry doldrums has come to a close, and early indications suggest that 2016 is unlikely to reveal the light at the end of the tunnel. With depressed metals prices, production exceeding demand for most metals, high levels of international political turmoil and a slowing Chinese economy, investors are understandably wary of the mining industry, and indeed of markets in general. As a result, SNL maintains a moderately negative outlook for investment in exploration, and does not expect exploration budgets to begin rebounding before 2017.

Over the past three years, companies have significantly restructured their operations and refined their strategies to better align with poor economic forecasts and to reassure their investors. Initially pushed to lower spending and increase profit margins, many majors have recently been forced to shrink their operations (including their exploration departments) to address balance sheet issues. The inevitable result is a slowdown in organic

Figure 5: Pipeline Activity Index and Industry Market Cap, 2008-15

10

40

70

100

130

160

$0

$500

$1,000

$1,500

$2,000

$2,500

M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D 2008 2009 2010 2011 2012 2013 2014 2015

SN

L Pipeline A

ctivity Index and Indexed Metals P

rice

Agg

rega

te M

arke

t Cap

italiz

atio

n (U

S$B

)

Mining Industry Market Cap Pipeline Activity Index (PAI) SNL Indexed Metals Price

50

75

100

125

150

175

-$1,750

-$1,250

-$750

-$250

$250

$750

$1,250

$1,750

$2,250

$2,750

M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D

2008 2009 2010 2011 2012 2013 2014 2015

SN

L Indexed Metals P

rice

In-s

itu R

esou

rce

Valu

e of

Sta

tus

Cha

nges

(US

$B)

Prd Decreases Pre on Hold Fea on Hold New Prd Mines New Pre Projects New Fea Projects SNL Indexed Metals Price

Figure 6: Project Milestone Announcements, 2008-15

11

Map 3: Location of Significant Gold and Base/Other Metals Initial Resources, 2015

ChileChile

MexicoMexico

OntarioOntario

TanzaniaTanzania

ArgentinaArgentina

KyrgyzstanKyrgyzstan

PhilippinesPhilippines

New ZealandNew Zealand

Yukon TerritoryYukon Territory

New South WalesNew South Wales

RussiaRussia

British ColumbiaBritish Columbia

PeruPeru

BrazilBrazil

TurkeyTurkey

SwedenSweden

NevadaNevadaMongoliaMongolia

QueenslandQueensland

Solomon Is.Solomon Is.

West AfricaWest Africa

Papua New GuineaPapua New Guinea

Western AustraliaWestern Australia

P a c i f i cO c e a n

A t l a n t i cO c e a n

I n d i a nO c e a n

Sum of Total In-Situ Value (US$M)

% Base/other metals

% GoldLess than or equal to 1,000

1,001 - 10,000

Greater than 10,000

growth, leading to greenfields projects being sold or placed on hold.

The prolonged period of poor financing opportunities for the majority of junior explorers has forced them to slash spending, renegotiate agreements or settle for unfavorable terms, go temporarily dormant or leave the industry altogether. When market sentiment eventually begins to improve, the recovery will likely be tentative, offering little promise of a quick restoration of the juniors’ fortunes. SNL therefore projects a further decline in junior explorers’ aggregate budget total for 2016.

Although the majors are likely to continue with highly focused exploration programs on less risky brownfields targets, SNL believes that some highly leveraged producers will continue curtailing exploration budgets in 2016, thereby lowering their category’s aggregate exploration effort. Given these forecast scenarios and the current general economic malaise, SNL projects a net decrease of about 15% in corporate exploration budgets for 2016.

The cascading challenges facing today’s global mining industry force you to analyze huge volumes of unwieldy data from too many sources. Varying accuracy standards create uncertainty. SNL Metals & Mining integrates data, news and in-depth analytics on one interactive platform. Our commitment to 100% accuracy is unique among information providers and our 24/7 client support is second to none.

Discover SNL’s best-in-class mining industry intelligence via the following services:

From worldwide exploration, development and production to strategic planning and acquisitions activity, SNL’s interactive database and unbiased research helps clients make confident decisions and improve results.

SNL Metals & Mining provides strategic consulting services to mineral explorers, mine developers, commodity producers, equipment suppliers, the service sector, financiers, trade associations and governments.

SNL Knowledge Center produces the most relevant, content-driven training on the mining sector, delivered through in-person courses, live online seminars and available as an in-house option, tailored to suit specific business needs.

The single source for global mining intelligence.SNLMetals.com

SNLInfo@SNL.com

Integrate exclusive mining data into your IR site.

Visit SNLIRSolutions.com to learn more.

SNL’s IR solution offers more than

standardized filings; we help you tell

your company’s financial story with

exclusive data from the metals & mining

industry, an interactive platform to

engage your investors and custom

design that mirrors your brand.

Integrate exclusive mining data into your IR site.

Visit SNLIRSolutions.com to learn more.

SNL’s IR solution offers more than

standardized filings; we help you tell

your company’s financial story with

exclusive data from the metals & mining

industry, an interactive platform to

engage your investors and custom

design that mirrors your brand.

RESEARCH & DATA CONSULTING EVENTS