Although a number of drilling services companies recorded record levels of business throughout most of 2008, the sudden collapse of base metal prices during the fourth quarter forced them to end the year focused on cost-cutting. For the mining industry-with apologies to poet T.S. Eliot-2008 ended not with a bang, but with a shudder.

During the last quarter of the year, global mining encountered a major speed bump in the form of an abrupt international economic slump that left producers and industry vendors nervously peering ahead to see if the next obstacle could possibly be a brick wall, or worse, a cliff. The go-go, feelgood atmosphere that permeated corporate hallways and trade-show exhibit halls for the past several years quickly vanished, and with a few industry-sector exceptions, has been replaced by a near-vacuum largely devoid of encouraging news or even faintly optimistic economic indicators.

A quick unravelling of commodity prices, disappearance of credit sources for juniors and a mass exodus of investors has put most mining companies in a position that traditionally spells trouble for mineral exploration funding and activity. Junior companies left without access to outside funding quickly turn to managing their existing cash reserves and in many cases will suspend or terminate exploration on all but the most advanced prospects. At the other end of the corporate spectrum, large producers likewise must focus on cost-cutting and cash preservation but often will also be squeezed in an entirely different financial vise-facing payments on loans taken out for acquisitions or projects during better times, while under constant pressure to find and develop additional mineral reserves to replace those depleted by production.

Under these conditions exploration budgets are usually one of the first cost-cutting targets, and this time around is no exception. For example, citing the precipitous drop in copper and molybdenum prices that occurred during the fourth quarter of 2008, Freeport McMoRan Copper & Gold announced on December 3 that after spending roughly $275 million on exploration in 2008, it would cut its 2009 budget to about $100 million.

Also in December, Rio Tinto issued a statement announcing that as part of its goal to reduce its debt commitment by $10 billion by the end of 2009, it was planning company-wide operational and capital cost cutting measures that would involve termination of 14,000 workers including about 8,500 contractors. This figure, according to Rio Tinto Chief Executive Tom Albanese, would include reductions in the company's exploration division.

However, the exact targets of these cuts were unspecified in the announcement, and during a conference call with industry analysts on December 10, Albanese presented his personal outlook-and in doing so, actually offered a faint ray of hope against wholesale cuts in the company's exploration division, commenting: "...I would just want to emphasize [my] views on exploration have not changed, that we have to retain long-term exploration capabilities.

"But," he continued, "we have to be ready to ramp down exploration costs. As you know, a large part of our exploration and evaluation cost increase over the past three years have been associated with the follow-up evaluation on successful discoveries. I think we can see significant reductions in those types of evaluation costs. But I think the ability to carry out generative exploration is quite important in good times and bad." (For additional insight into Rio Tinto's exploration strategy, read the following report "Baltic Exchanges" by European Editor Kyran Casteel.)

BHP Billiton, with more than $4 billion in cash and cash equivalents in its coffers at the end of fiscal year 2008 and able to sell off less-than-top-tier mineral discoveries to fund ongoing exploration, would seem to be in an strong position to survive the market slump without massive cuts in exploration activity. However, with iron ore prices predicted by some to fall by as much as 50% in future negotiations with buyers, coking coal prices expected to decline to $120/mt from $300/mt, and with copper and nickel still in a downward slide, the world's largest mining company announced on January 21 that it planned to cut about 6,000 jobs because of the global economic downturn and weakening demand for its products. The layoffs represent about 6% of the company's global workforce of 41,000 employees and 60,000 contractors, and include 3,400 jobs in Australia mostly in coal and nickel production, 2,000 base metals jobs in Chile and 550 positions at the Pinto Valley copper mine in the United States. How the cuts will affect the company's exploration program remains to be seen.

BHP Billiton reported spending $357 million on exploration during the first half of its fiscal 2008-09 year.

Overall, industry nonferrous metal exploration spending during 2008 was in the vicinity of $13.2 billion, according to Halifax, Nova Scotia-based Metals Economics Group. When combined with uranium exploration spending, MEG estimates that the global spend was more than $14.4 billion. Taking into account only nonferrous exploration budgets, that level of spending represented a 26% increase over 2007 and the sixth consecutive yearly increase since the previous industry slump bottomed out in 2002. (For further details from the MEG study, see Markets, p. 64, this issue, "Nonferrous Exploration Budgets Peak in 2008.")

Beyond the well-publicized cuts announced by the majors, it's difficult to accurately assess how severely the global financial crunch has affected juniors. However, an oblique glimpse into the good times/bad times dichotomy of fiscal 2008-and specifically how it relates to exploration-can be gained in the second quarter financial report of Major Drilling Group International Inc. Based in Moncton, New Brunswick, Major is one of the world's largest metals and minerals contract drilling service companies, with current operations in Canada, the United States, South and Central America, Australia, Indonesia, Mongolia and Africa.

In the report, issued in early December for Major's second fiscal- year quarter ended October 21, 2008, the company said that it had posted record profits from the highest quarterly revenue and the highest quarterly earnings in its history. However, noted Major Drilling's President and CEO, Francis McGuire, despite its recent record-breaking performance, the company had to take quick cost- cutting actions ranging from lowering 2009 capex to worker layoffs, as well as retirement of less-productive older rigs that had until recently been busy drilling on contract, in order to prepare for what he termed "a significant slowdown" in calendar 2009 as the industry's exploration outlook remained unclear.