Tumbling metal prices and falling equity valuations highlights the serious uncertainty about the world economy. The recent quarter ended with the Governor of the Bank of Japan announcing a huge monetary stimulus, Europe bailing out the banking system in Cyprus, disappointing employment figures in the US and worrying signs of a slowdown in the Chinese economy.

Exploration activity has been trending down since the end of October 2011, and according to the latest State of the Market report from IntierraRMG, there were drilling reports from only 355 prospects in March. Gold exploration is particularly low, with activity reported from just 172 prospects in March, compared with 382 in March 2012.

The figures for the next few months are unlikely to improve following the precious-metals price collapse in mid-April and a significant drop in recent exploration funding.

Slumping metals prices, and falling equity valuations, reflect serious uncertainty about the world economy. The recent quarter ended with the Governor of the Bank of Japan announcing a huge monetary stimulus, Europe bailing out the banking system in Cyprus, disappointing employment figures in the USA and worrying signs of a slowdown in the crucial Chinese economy. This depressing scenario has had a knock-on effect over the minerals exploration sector.

If the exploration sector is looking for some comfort, it might come in the knowledge that the past six months of falling metals prices comes off historically high levels. The price of gold, for example, had risen seven-fold since 2001 to an all-time high in 2011 of over $1,900/oz. Indeed, the last time the UK saw gold at over £1,000/oz, in real terms, was in 1489 when the Royal Mint issued sovereign coins valuing an ounce of gold at £2.

As indicated in the IntierraRMG report however, gold is still priced at well above the cash extraction cost of a large part of the world’s production. Even at the recent two-year low, fewer than 9% of the 235 gold mines monitored in the Raw Materials Group database (RMD) had average cash operating costs higher than the metal’s price.

Of the gold mines in RMD’s cash-cost module, 215 operations had average costs under $1,350/oz in 2012 operating costs. These mines produced a combined 1,268 t last year at a weighted average operating cost of just $693/oz. These operations produced 97% of the gold output from the monitored mines.