Global miners line up funds to raise capacity

BHP Billiton, the world's largest miner, and rivals may spend more in 2007 on exploration than last year's record $7.13 billion to search for metals in Asia and Africa as Chinese demand depletes existing mines.

Miners will boost budgets again this year, after increasing expenditure 40 per cent in 2006 from a year earlier, said Jason Goulden, director of corporate exploration at Metals Economics Group, a research company.

Decades of underinvestment in mines, and a Chinese economy which has doubled in size over the past decade means BHP and rival Rio Tinto Group cannot deliver enough copper and nickel to meet demand. Miners are heading to new territories in Mongolia, Indonesia and Congo, seeking what Rio Tinto's Chief Executive Officer Leigh Clifford has called "world-class deposits.''

"New exploration in regions traditionally perceived to have higher political risk has been the hallmark of the current exploration cycle,'' Goulden said on March 22 from Nova Scotia, Canada. "We expect this trend to continue in 2007 as the ongoing struggle to replace reserves makes exploration in emerging markets the norm.''

Metal prices have rallied for five years, sending copper to a record $8,800 a tonne last May and nickel to an all-time high of $48,500 a tonne this month. Prices of iron ore, used in steelmaking, have jumped for five straight years to a record.

"The prevailing need at the moment is to find more resources,'' said Tim Rocks, strategist at Macquarie Securities, on March 23. "Companies are being forced to go to wherever they can.''

Rocks, whose recommendations include Rio Tinto, the third-largest miner, and BHP Billiton, is set be among participants at the Asia Mining Congress, that opened today in Singapore.

The three-day event heard first from Bret Clayton, head of copper at Rio Tinto, on the company's Oyu Tolgoi project in Mongolia, a deposit 80 kilometers (50 miles) from China.

"It's getting harder and harder to bring new resources on,'' Clayton said, highlighting longer delivery times for trucks, tires and materials. "This is one of the aspects that has impacted on our ability to bring projects online.''

Rio Tinto, based in London, raised exploration expenditure 31 per cent last year to $345 million and "almost every continent is of interest,'' said spokesman Ian Head. Rio and BHP Billiton last year agreed to look for minerals in Russia. Rio also sent a team to Congo's Katanga region, host to a tenth of the world's copper reserves, Credit Suisse Group said on March 21.

"Mining companies are being forced into harder environments in Africa, and other parts of Asia and Mongolia,'' Bhagyesh Dash, managing director at Crosby Capital Partners, said. In these areas "the political environment is less stable, the regulatory framework is uncertain, and there is more chance of'' supply disruptions.

Still, BHP expects to find a "strong opportunity'' in Siberia, and Russia is a place the company needs to be "to learn our way into operating in an environment like that,'' said Chief Executive Officer Charles 'Chip' Goodyear on February 7. BHP, based in Melbourne, is raising exploration expenditure on minerals by 19 percent to $350 million for the year ending

June 30, from a year ago, according to spokeswoman Emma Meade. Miners are spending more in Africa, China and Mongolia, where the chances of finding new deposits are better than in

Australia, Canada and the Latin America, which are "more well- explored,'' said Metals Economics Group's Goulden.

Still, finding deposits does not mean companies can successfully open mines. Rio Tinto has said a possible $2 billion investment in an Indonesian nickel mine is dependent on winning a government accord.