Recovering commodity prices renew interest in exploration activities
Investors are wary of a copper supply shortage as demand for the metal is projected to grow by 1.7 million mt/y by 2027, according to the Copper Development Association. The worldwide increase in demand for cleaner energy, coupled with bets on economic recovery pushing metal prices to unprecedented highs, will drive increasing demand for copper. Resulting higher metal prices could cause a 15% to 20% increase in mineral exploration budgets, according to S&P Global.
In 2020, Chile registered an exploration budget of US$458 million – the fourth highest in the world and equivalent to 5.5% of the global exploration budget for nonferrous metals, according to S&P and Cochilco. However, this figure decreased by 30% in 2020 as the pandemic pushed companies to slash capex activities such as mine development, exploration and maintenance for a few months. Globally, in 2020, exploration budgets decreased 10% to US$ 8.7 billion compared to US$ 9.2 billion in 2019, with copper being the most affected with a drop of US$560 million, of which the drop for Chile was US$ 196 million.
According to Cochilco, out of the 101 companies with exploration projects in Chile, 75 are junior companies, who tend to be headquartered in Canada or Australia. However, even though juniors are active, they represent a smaller portion of the market relative to other mining jurisdictions. Major companies remain the most relevant actors in Chile's exploration segment, representing 85% of the total exploration budget in 2020. Nonetheless, majors tend to focus on updating their resource base and reserves of their current deposits through predominantly brownfield activities, which is worrying considering the need for greenfield projects given the industry's recent decline in productivity due to falling ore grades.
"Shareholder and stakeholder pressure is a factor that prevents greenfield exploration and favours brownfield," commented John Currie, director of prospect generator Excava. "It is false to assume that Chile has no greenfield opportunities and has matured in terms of exploration potential. Also, the past downturn in the commodity cycle has limited access to capital for exploration activities. Another deterrent has been limited access to the prospective ground. We look forward to capturing opportunities with the boom in commodity markets," he continued.
Junior exploration updates
A good portion of the copper prospects in Chile currently undergoing exploration are porphyry-type deposits, followed by iron-oxide-copper-gold (IOCG) deposits. Torq Resources acquired the promising Margarita IOCG project in March 2021, with an exploration target of approximately 20-35 million mt of copper at 0.2-0.5% Cu.
Pampa Metals controls a 100% interest in eight exploration projects in northern Chile. "Five of the eight projects' geology is obscured by young sedimentary sequences, so geophysical exploration is our current priority combined with geological mapping, a program that has already been started at Arrieros," stated Timothy Beale, director of Pampa Metals. “Pampa Metals' primary focus is on copper, however, three of our projects also have good evidence for potential gold and silver mineralization."
Recent arrivals to Chile’s junior segment include Tesoro Resources, Orestone Mining Corp, Solaris Resources and Helix Resources, while Austrin Resources, Cornerstone Capital Resources, Josemaria Resources, MGX Minerals and Santana Minerals, discontinued exploration activities in Chile.
"The past downturn in the commodity cycle has limited access to capital for exploration activities. Another deterrent has been limited access to the prospective ground. We look forward to capturing opportunities with the boom in commodity markets."
John Currie, Director, Excava
Orestone Mining Corp commenced a 1,200m drilling program on its Resguardo project, showing typical porphyry characteristics and a similar mineralization to Candelaria. TSXV-listed Solaris Resources is drilling for discovery at its Tamarugo and Ricardo projects.
"Exploration activities undertaken in Chile today are predominantly focused on immediate production and converting existing resources or revisiting historical data. The decline in greenfield exploration is alarming and cause for concern," commented Michael Kosowan, president and CEO of Vancouver-based Torq Resources. "The risk-taking attitude towards exploration needs to be fostered and increased. This dormancy period in exploration affects regions like Chile because grounds are not readily open or are held by groups with low interest in exploration."
"Exploration activities undertaken in Chile today are predominantly focused on immediate production and converting existing resources or revisiting historical data. The decline in greenfield exploration is alarming and cause for concern."
Michael Kosowan, President and CEO, Torq Resources
Most registered companies rely on releasing shares to raise capital for their activities. Cochilco's report on exploration activities in 2020 identifies the Toronto Stock Exchange (TSX), the TSX Venture Exchange (TVX) and the Australian Stock Exchange (ASX) as the main markets funding exploration activities in Chile. In 2020, TMX Group (TSX and TVX) funded 34% of projects in Chile, while the ASX funded 28%.
An alternative to stock market financing is private equity, which decreases companies' exposure to the volatility of public financial markets. While most private equity firms financing exploration are foreign, some companies are looking to raise capital locally such as Astra Exploration. "We are exploring many options for financing, such as private investors and local institutions. It is vital for Astra to engage with local investors in Chile," explained managing director Brian Miller.
The medium-sized mining space has been increasingly attracting attention from private equity firms in the last years. For example, Denham Capital has a wide portfolio of mid-tier companies that started off as juniors, such as Santiago Metals, operating the Delirio and Puquios projects. Meanwhile, Mantos Copper is owned by a consortium led by British investment firm Audley Capital and Orion Mine Finance Group, who bought Mantos Copper and Mantoverde from Anglo American.
Image courtesy of Pampa Metals