December 2022 quarter: Diamonds are forever, but lithium, gold & rare earth metals are for now
December 2022 quarter: Diamonds are forever, but lithium, gold & rare earth metals are for now
Latest research from business advisory firm BDO into the cash position of ASX-listed explorers reveals that explorers remain in good stead, with financing inflows bouncing back from a temporary lull last quarter. Furthermore, investment and exploration spending reached some of the highest levels since BDO started this analysis in June 2013.
The December 2022 quarter saw explorers raise $3.02 billion of funds, with lithium and gold once again topping the leader board for the amount of funds raised in the 2022 calendar year. Rare earths also achieved a podium finish for the calendar year.
The quarter also saw total exploration spend decrease by 8 per cent to $993 million, but it should be noted that this figure still reflects a robust level of exploration activity compared to historical levels.
Sherif Andrawes, BDO’s Global Head of Natural Resources, said the December quarter saw the second largest amount of funds raised in a quarter since the start of BDO’s analysis in 2013.
“This quarter we saw a stark 66 per cent increase from the $1.82 billion raised in the September quarter 2022. This return of strong financing inflows indicates that funds are still flowing readily into the sector and suggests that the dip in the last quarter was merely a temporary tightening of capital markets due to global economic uncertainty,” Sherif said.
“Our explorers have more than bounced back from a very temporary dip, with record-high raisings seen this quarter. Gold explorers raised the most funds for the second consecutive quarter as growing inflation, geopolitical uncertainty and market volatility continued to drive demand,” he said.
“But for the 2022 calendar year as a whole, lithium explorers proved once again their ability to attract funding and were the leading commodity for fund raisings for the second consecutive year.”
Sherif added that other energy transition metals such as rare earths, graphite, cobalt, uranium and nickel were prominent in capital raisings in 2022, which he said were supported by favourable investor sentiment and supply concerns.
“We see gold, lithium and rare earth metals as the commodities of the moment, and we expect this trend to continue into 2023 and beyond. ASX listed explorers are well placed to take advantage of the focus in each of these three commodity groups over the coming quarters,” Sherif said.
“Gold is a well-recognised place for investors to turn to in times of geopolitical or economic uncertainty, and we are certainly facing these times at the moment. With the depth of expertise that ASX listed explorers have in the gold sector - both for local and overseas projects - we can expect gold to attract increased funding, at least in the short term.”
“That being said, we are seeing an increase in consolidation in the gold sector which may see the overall number of gold companies reduce,” Sherif added.
Sherif commented that the energy transition will need a vast supply of minerals to enable the world’s net zero commitments to be achieved.
“The mines that are required to supply those minerals are not currently in existence, so there is an acute need for exploration for new sources and for the expansion of existing sources of these minerals. Once again ASX listed explorers can expect to be at the forefront of receiving the investment to meet this demand, and to then spend those funds on exploration. We expect this to be the case for an extended period given the quantum of the demand and the expected shortfall,” Sherif said.
“Global geopolitical uncertainty has brought into focus the potential impact of reduced access to sources of rare earths. We are seeing demand from western countries to seek and secure alternative sources for rare earths metals. Our explorers are well positioned to take a central role in this given their expertise and the wealth of rare earths in Australia.”
Sherif noted that while exploration expenditure saw an 8 per cent decline from the record $1.04 billion and $1.07 billion spends in the June and September 2022 quarters respectively, the $993 million raised is still one of the highest levels observed since 2013, showing a continued strength in exploration activity.
Fifty one companies raised funds of $10 million or more, up from 47 in the September quarter, and these companies made up 76 per cent of the total funds raised.
“This quarter we saw a turbulent mix of economic and geopolitical uncertainty, which highlights the true extent of the world’s need for resources and, most importantly, the need for secure and sustainable supply,” Sherif said.
“Australian explorers are in a strong position to meet the future metal demands that will come from a global energy transition,” he said.
Read the story in the AFR: Rare earths: Exploration raisings top $3b with rare earths in rare air (afr.com)
Read the story in The West Australian: Australian explorers raise over $3b in December quarter on strong demand for lithium, gold, rare earths | The West Australian
Read the story in Stockhead: With declining resources and reserves Australia's biggest driller says explorers need to keep splashing the cash - Stockhead
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