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Miners cut back on exploration as prices slide

Miners have cut their spending on exploration for the first time since the global financial crisis, with further falls expected after the recent plunge in commodity prices.

The Bureau of Statistics today said mining exploration retreated from a record high in the March quarter, easing by $53 million to $1.02 billion in the April-June period.

The decline - the first since March 2009 - was driven by weaker spending in the mining boom states of Queensland and Western Australia.

It occurred before the 30 per cent drop in iron ore prices of recent months, with iron-ore exploration rising strongly during the June quarter.

But with iron ore now trading near three-year lows of less than $US90 a tonne, the slide in total exploration is tipped to continue in coming months as drilling for the mineral is put on hold.

"When even the bulk commodities are falling we would expect that a lot of companies would preserve cash and spend less on exploration," said Simon Bennison, the chief executive of the Association of Mining and Exploration Companies.


Alongside the fall in exploration spending, the number of metres drilled also declined slightly, to 2.88 million.

Mr Bennison said the slide had come as many copper, zinc and gold explorers had struggled to attract capital for spending over the last year.

News of the slump also comes amid market downgrades of the earnings outlook for big producers including BHP Billiton, Rio Tinto, and Andrew Forrest's Fortescue Metals.

CommSec analysts today said that if the iron ore price stayed at current levels, BHP's earnings would be 23 per cent lower than expected, Rio's 41 per cent lower, and Fortescue would fail to make a profit.

In the June quarter, the ABS said spending on iron-ore exploration jumped 25 per cent to $336.2 million. However, this is unlikely to continue without a recovery in prices.

A mining analyst at Patersons Securities, Tim McCormack, said there was little point in speculative exploration for iron ore at current prices because new miners needed higher prices for their projects to be economic.

"I think we will see a softening in exploration spending from miners and resources as long as the price stays where it is," Mr McCormack said.