More funding for advanced stage explorers

The amount of money raised by ASX-listed explorers increased by 19 per cent to $1.61 billion in the December quarter, primarily for larger companies with lower-risk projects, according to a new report from accounting firm BDO.

The Financial Health of Australian-Listed Explorers has revealed a growing appetite for investment in the sector compared with low levels experienced at the end of 2018.

However, companies receiving a large portion of the funds were more advanced-stage explorers with near-term projects, BDO said.

Perth-based West African Resources was one of 27 companies to raise $10 million or more during the December quarter, having raised $94.5 million from borrowings, which the company said would go towards continued development of its Sanbrado gold project in Burkina Faso.

Other Western Australian explorers to raise significant amounts over the quarter included Pilbara Minerals, which raised $70 million, Salt Lake Potash ($52 million) and coal explorer Aspire Mining ($36 million).

The 27 companies in total accounted for $1.13 billion of the $1.61 billion in total financing inflows recorded during the December quarter, BDO said.

Of the $1.13 billion, oil and gas explorers accounted for 42 per cent of the financing inflows, primarily relating to Victoria-based Karoon Energy, which raised $284 million under capital raisings over the quarter.

Total exploration expenditure by ASX-listed explorers of $477 million remained above the two-year average of $435 million per quarter, with median expenditure $210,000 per company, compared with its previous quarterly figure of $220,000.

The average cash balance for explorers increased slightly to $6.2 million.

BDO said it expected exploration companies to run lean administrative functions, with 40 per cent of companies having less than $1 million in cash.

“I think we’re seeing a survival of the better-run companies,” BDO head of global natural resources Sherif Andrawes told Business News.

“There is more money going into the ground as exploration and investment, and there’s less money going into administration and overheads.

“I think that’s a really healthy sign for the exploration sector.”

Mr Andrawes noted a “two-speed” market, where larger explorers with nearer term projects were finding it easier to raise capital.

The report noted strong mergers and acquisitions activity over the quarter, with major Australian gold producers undertaking strategic acquisitions of smaller gold explorers.

In December, Northern Star Resources completed its scrip takeover of Echo Resources at 33 cents per Echo share, while Silver Like purchased EganStreet Resources in January after lifting its offer from 27 cents to 43 cents per Egan share.

BDO said similar deals would continue across the sector, with investment shifting away from junior explorers to developers and producers with lower exploration risk and stronger environmental, social and governance (ESG) initiatives in place.

“An observation of the market conditions in Canada and South Africa (which have historically been prime markets for junior exploration) shows a shift in investor emphasis onto the ability of mining companies to comply with ESG initiatives,” BDO said.

“The perception is that such expectations are best met by larger producers only, resulting in funds being redirected to the larger companies and an expectation that the sector will see a greater level of consolidation in the medium-term.

“From the December 2019 quarterly data, it appears that this trend has yet to hit the ASX in full force, however, BDO expects that this may have an impact on the market conditions for explorers over the coming periods.”