By Dr Nicolaas C Steenkamp
Exploration is unlikely to see a significant uptick in the coming year, following the commodity and mining slump of 2023-2024, while mergers and acquisitions are likely to remain the focus for the near future.
Exploration globally, and specifically in Africa, is not expected to see an increase in activity or capital outlay during 2025. Instead, it is anticipated that mining operations and investors will continue to engage in capital conservation measures, cost saving initiatives and more retrenchments.
Efforts will focus on optimising current production and maximising returns on brown-field sites with the least amount of expenditure. Traditionally market downturns are seen as an opportunity to engage in exploration activities, being able to better leverage contracts.
It is expected that the trend of 2024 with a focus on mergers and acquisitions will continue to fill the immediate demand for commodities, specifically in the energy transition mineral sector. The main driver will be to obtain shovel-ready copper projects or prospects that can be fast-tracked into production. The number of these available projects are however finite, and eventual large scale exploration projects, like KoBold in Zambia, will become essential to meet future demand.
Exploration projects, apart from access to capital, are facing increasing challenges in getting site work started. The process to obtain permits and licences is taking increasingly longer, with more administration and often other precursor studies being required. Environmental and social constraints (the social licence to mine) are also increasingly straining exploration, delaying projects or causing the cancellation of projects.
The global commodity price slump of 2024 has significantly impacted the exploration sector – commodity prices have not been conducive to motivate for incurring exploration expenses. All commodities have experienced varying degrees of price volatility in the past year and China remains the key influencer in this regard. The country is in a position to influence the market by either flooding the market with certain commodities creating a glut or imposing short notice export restrictions with a resulting rally in prices. There is no clear indication of the volumes of materials stored in Chinese warehouses, such as cobalt, lithium, rare earth elements and copper. In response, affected countries have continued to build their strategic mineral stockpiles.
Furthermore, the Chinese construction industry remains depressed, with decreasing demand for materials, in turn resulting in reduced output from steel factories and manufacturing plants and mothballing of quarries for aggregates and cement. This impacts the exporters of iron ore to China.
De-industrialisation of the West will continue to also impact exploration negatively in these domains. More stringent environmental and community relations requirements, with the associated higher cost and longer project lead times, are discouraging exploration investments in these countries. Developing countries have also started to follow suit.
The increasing energy shortage is also having a tangible effect on the future capacity to establish energy intensive processing and beneficiation plants and refineries. The low potential of developing a downstream offtake industry, will also inhibit exploration and development of mineral deposits in these domains.
Those commodities expected to remain weak could include some key EV battery minerals such as cobalt and lithium. The platinum and broader platinum group elements (PGEs) and producers are projected to remain under pressure. Silver may also struggle as the solar energy demand and production of panels is starting to plateau. The potash agricultural market is also near saturation point. After the initial flurry to fill the new gap in the uranium market in 2024, most of the operations and projects that were placed on care-and-maintenance are expected to be back in operation and supplying sufficient yellow cake to the market.
Commodities that have the potential to remain strong and expand include gold as a safe haven investment, especially as global tensions, conflicts and market uncertainties escalate. Coal also has the potential to remain strong as alternative energy sources are still nowhere near capable of servicing the current energy demand and traditional power generation through coal power plants continues to strengthen in China and India. Manganese and fluorspar are anticipated to maintain their slow, but steady strengthening in the near future too.
Increasing skills shortages in the mining sector have also been highlighted recently as an international concern. A reduction of field-savvy geologists with exploration experience might impact the development, training and implementation of new exploration methods, such as AI processing of large data sets to delineate potential targets. The database also still requires fieldwork to generate the data and all models and targets generated by AI or other applications should be evaluated, vetted and ground-truthed by an experienced exploration geologist.
As with the previous mining downturns, the exploration sector will need to weather the storm and continue to invest in innovative ways to highlight the relevance and importance of continued exploration to meet the demands of an ever-changing world.
Reference: As at the time of writing in September 2024
 |
Dr Nicolaas C Steenkamp is an independent consultant, specialising in geological, geotechnical and geometallurgical projects and mining project management. He has over two decades of industry experience with global exposure. (ncs.contract@gmail.com) |