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1301.0 - Year Book Australia, 2003  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 24/01/2003   
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A decade of Australian exploration expenditure - 1991-92 to 2000-01

Introduction

This article discusses expenditure on mineral and petroleum exploration over the past 10 years and describes, in broad terms, some of the major influences on that expenditure. For geographic breakdowns, the analysis covers seven years only, as a breakdown for petroleum exploration data was not available before 1994-95.

All values, except those relating to 'world exploration expenditure', are presented in current prices. It has not been feasible to remove the effects of price changes from these data.

Expenditure pattern over the past 10 years

Over the 10 years to June 2001, $8.3b was spent on the search for minerals in Australia, while $7.5b was spent on the search for petroleum in Australia and surrounding waters.

For the decade to December 2001, Australian non-ferrous mineral exploration expenditure remained relatively consistent as a proportion of global non-ferrous mineral exploration, averaging 18.3%. This relationship has been particularly steady in the past five years, with the average proportion being 17.7%. As shown in graph 18.6, both the global and the Australian levels in non-ferrous mineral exploration expenditure have declined steadily since 1997.

Graph - 18.6 world non-ferrous mineral exploration expenditure(a)



Graph 18.7 shows that Australian expenditure on mineral and petroleum exploration grew reasonably steadily from the early 1990s until 1997-98. It then declined, with mineral exploration being the major contributor to the total decline. By 2000-01, total exploration had fallen to levels similar to those of the early 1990s. Petroleum exploration expenditure fell in 1998-99 and 1999-2000, but rose markedly in 2000-01 to the highest level ever recorded in the series (which began in the mid 1970s).

Graph - 18.7 Mineral and petroleum exploration



The pattern of expenditure on exploration from the early 1990s to date does not appear to have been strongly influenced by the economic performance of the mining industry. The industry increased production throughout the 1990s, with some of the highest growth in production occurring in those years when exploration expenditure was declining.

Influences on mineral exploration levels

Intuitively, commodity prices would be a major consideration in corporate decisions concerning exploration activity. To test the strength of this link without the complexity which would accompany examination of data for a large number of commodities, the possible relationship between commodity prices and mineral exploration expenditure in Australia has been examined below in terms of exploration for gold. Over the past 10 years, gold exploration expenditure has been the major contributor to overall mineral exploration expenditure (contributing more than half) and movements in gold exploration expenditure have often been the major factor driving changes in overall mineral exploration expenditure.

Graph 18.8 shows the broad relationship between expenditure on gold exploration and the price of gold in $US (virtually all Australian gold contracts are expressed in $US). The underlying data show that there was a fairly strong positive relationship between gold prices and gold exploration expenditure over most of the period, though this relationship should not be regarded as fixed.

Up to 1996, levels of exploration expenditure generally followed prices with a lag of around three months. During mid to late 1996 and in early 1997, there was a short period when the relationship became unstable. This period coincided with the beginning of the downward trend in gold prices which has continued up to the present. By late 1997, the positive correlation seemed to resume (again in a general way) but with a longer lag between price changes and expenditure changes (around six months). In recent years, gold exploration expenditure has followed prices downward and is now at levels barely above those of the early 1990s.

Graph - exploration for gold and gold price



While the price of gold and trends in that price are clearly important factors in determining levels of exploration expenditure, there have also been several other influences in recent years. Prominent among these have been the availability and placement of venture capital (which is subject to a variety of influences including, in more recent years, central bank gold sales and the emergence of 'dot.com' investment opportunities, as well as general economic influences) and considerations related to taxation, native title, cultural heritage protection and environment protection. However, little information is available to help determine the extent to which such influences have affected the level of expenditure on gold exploration.

Influences on petroleum exploration levels

In contrast to the situation with gold, there appears to be little (if any) correlation between the price of oil and the level of petroleum exploration expenditure (as illustrated by graph 18.9). Therefore, other factors must explain the levels of petroleum exploration expenditure in Australia.

Graph - petroleum exploration, index numbers(a)



One likely explanation is that a substantial proportion of petroleum exploration expenditure is carried out by the major oil companies (or by others on their behalf), with exploration representing an early phase of their overall operations. In these circumstances, the main influences on exploration expenditure within Australia are likely to be the more complex commercial considerations of oil companies operating in a global context.

Investment decisions by the oil companies, along with decisions by the other businesses engaged in petroleum exploration, will most likely be influenced by broad conditions such as global and national economic trends, taxation systems, arrangements regarding the Joint Petroleum Development Area (formerly known as the Zone of Co-operation) in the Timor Sea, and the availability of venture capital and the opportunity costs associated with use of that capital. In addition, there will be more specific issues underlying exploration decisions, such as the issues associated with native title requirements, cultural heritage protection, environment protection, overseas prospects, and international political stability.

Geographic aspects of exploration expenditure in recent years

Graph 18.10 shows the broad geographic distribution of exploration expenditure in Australia over recent years. In looking at state and territory shares, it should be noted that offshore petroleum exploration expenditure has been allocated to the state/territory which administers the region. Exploration expenditure for the Joint Petroleum Development Area has been allocated to the Northern Territory data.

State and territory distribution of exploration expenditure corresponds broadly to the level of production by the mining industry within the respective state or territory. This is particularly the case for Western Australia, which has by far the largest production by the mining industry as well as the largest exploration expenditure. Similarly, Queensland ranks second among the states for both production and exploration expenditure (although Northern Territory exploration expenditure is slightly larger when account is taken of the offshore areas).


Graph - 18.10 exploration expenditure - 1994-95 to 2000-01



Graph 18.11 narrows the focus to mineral exploration expenditure only. It illustrates that over the past seven years, mineral exploration expenditure in Western Australia was substantially larger than expenditure in any other state or territory, and in fact exceeded expenditure in all other states and territories combined.

Western Australian dominance of exploration expenditure was largely due to investment in the search for gold ($2.6b having been spent over the seven-year period). For other minerals, Western Australia remains the state attracting the largest expenditure, but not to the same degree.

Graph - 18.11 mineral exploration expenditure - 1994-95 to 2000-01



Drilling operations in mineral exploration

During the 10 years to 2000-01, over 87 million metres (87,000 km) of drilling was undertaken in the search for minerals in Australia. Graph 18.12 shows a steady rise in drilling activity from the early 1990s, reaching a peak of 12.8 million metres in 1996-97. Over the period the proportion of drilling undertaken on production leases remained fairly stable, ranging from a low of 28% (several years) to a high of almost 35% (in 1996-97).

Graph - 18.12 mineral exploratio, metres drilled



A variety of drilling methods are used in mineral exploration in Australia. In the period 1994-95 to 1999-2000 inclusive, $825m was spent on diamond drilling, resulting in 8.1 million metres drilled. Corresponding data for other methods are reverse circulation drilling ($781m spent and 22.2 million metres drilled), rotary air blast drilling ($252m spent and 19.3 million metres drilled) and various other methods ($223m spent and 9.5 million metres drilled).

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