Financial health of explorers at a crossroads

The financial health of Australian-listed explorers is at a crossroads, with industry consolidation looming as a potential strategy to navigate rising costs and declining commodity prices, BDO’s latest quarterly explorer cash update has revealed.

The September 2024 quarter saw a notable contraction in the number of exploration companies, with eight fewer explorers, marking the largest reduction in a quarter since December 2019.

BDO’s global Natural Resources & Energy Leader Sherif Andrawes said the decline can be attributed to market volatility, funding challenges, regulatory pressures, and shifting investor focus.

“The Reserve Bank of Australia's decision to maintain its cash rate at 4.35 per cent amid persistent inflationary pressures has made capital harder to secure, especially for smaller explorers,” Sherif said.

“This, coupled with rising operational costs, has prompted many companies to consolidate or streamline operations. On the global stage, China's economic slowdown and geopolitical instability have further impacted demand for Australian resources, particularly metals.”

Gold exploration continues to attract significant investment, driven by its status as a safe-haven asset amid economic uncertainty, while lithium also remained a strong player.

“The September quarter saw a surge in gold prices, boosting fundraising efforts for gold explorers.

“Meanwhile, lithium exploration remains robust, with the commodity representing half of the top ten explorer investments by number. Whilst we have seen a minor recovery in lithium prices,  the sector still faces risks from slower-than-expected growth in electric vehicle sales.”

However, the report revealed the number of companies raising $10 million or more in debt and equity dropped to 28, the lowest since early 2020 – a decline that raises concerns about the sector's ability to secure necessary funding.

Despite these challenges, explorers have shown resilience, maintaining exploration activities and adapting to the evolving economic environment.

“Despite tightening financial conditions, the total exploration expenditure remained steady at $795 million, reflecting only a modest 4 per cent decrease from the previous quarter,” Sherif said.

“This stability underscores the sector's resilience and ongoing commitment to advancing projects.

“However, net operating cash outflows increased by 11 per cent to $1.21 billion, while overall cash reserves declined by 7 per cent to $7.30 billion.

“Given the current landscape, we expect larger, well-capitalised players to seize undervalued opportunities, reshaping the sector and creating more resilient market participants.”

Read the report

Tate Papworth
Manager, Media
E: tate.papworth@bdo.com.au
Ph: 0433 411 189