By Euan Rocha
TORONTO, March 4 (Reuters) - Last year's rebound in exploration spending by the global mining industry is still going strong, even though the volatility that buffeted commodity and equity markets last year has yet to fade, according an influential report published on Sunday.
The study from Metals Economics Group, issued in partnership with the Prospectors and Developers Association of Canada, sees the largest gains coming in gold exploration activity, extending on 2011 gains. Overall exploration spending rose about 50 percent last year.
MEG's World Exploration Trends report is issued every year at the opening to PDAC's convention in Toronto, the global industry's largest annual gathering.
"Early indications from companies we've been talking with so far this year show that many gold producers are increasing their exploration budgets by more than most of the other commodity producers we've talked with," said Jason Goulden, head of research for MEG, a Halifax, Nova Scotia-based consultancy.
Exploration spending on non-ferrous metals touched a new all-time high of $18.2 billion in 2011, more than double a low of about $8.4 billion in 2009, when the industry was stung by the global economic meltdown.
Exploration spending rose steadily between 2002 and 2008, on the back of surging demand from emerging economies and strong metal prices. The boom came to an abrupt end in late 2008 and early 2009, as the impact of the U.S. housing market collapse rippled across the globe.
Since bottoming in 2009, spending has bounced back strongly, as despite recent volatility, metal prices over the last two years have remained well above historical levels.
Even as most geographies benefited from the sharp increase, miners appeared to have a much bigger risk appetite in 2011, as spending in countries commonly viewed as risky jurisdictions rose to 23 percent of aggregate spending from 15 percent in 2010.
Over the last two years as metal prices have strengthened, a number of emerging economies, as well as some established mining jurisdictions such as Australia and Chile, have looked to raise taxes and royalties. That has increased mining costs and put the viability of some projects into question.
"The potential reward of working in higher-risk areas often increases the industry's appetite for risk during periods of increased exploration spending, but exploration in high-risk countries, particularly early-stage work, is usually the first to be cut when risk levels or uncertainty increase," said MEG in the report.
Colombia and Burkina Faso are two countries that have enjoyed robust exploration in recent years, and both are well positioned to expand their share of the world exploration total, said Goulden.
Gold, copper and silver projects accounted for the largest chunk of exploration spending, according to the report. Latin America as a whole attracted 25 percent of the total spending, with Canada accounting for 18 percent.
Turmoil in equity markets late last year as the European debt crisis heated up led to a rough patch for junior mining companies, which often sell equity ahead of the new year to raise capital for funding their exploration projects.
The dry spell could hurt the pace of growth in exploration spending in 2012 and result in some bargain basement deals for larger miners scouting for promising new projects.
"Juniors with promising projects at current and long-term metals prices, but with insufficient access to equity funding to advance them in the short term, are more open to financing, joint venture, or acquisition discussions," said Goulden.
He said cash-strapped explorers are likely to agree to less favorable terms for themselves than they would have in early 2011.
That said, funding for the juniors appears to be picking up a bit in early 2012. Moreover, many juniors took advantage of much stronger market conditions in late 2010 and early 2011 to raise enough to fund multi-year programs.
"Although conditions for the juniors aren't as good as they were a year ago, overall we expect planned exploration spending by the juniors to remain relatively flat in 2012 or possibly show just a marginal decline from 2011," said Goulden, who sees overall exploration spending rising at a more tempered pace this year.