March 2022 quarter: A prospector's dilemma
March 2022 quarter: A prospector's dilemma
Latest research from business advisory firm BDO into the cash position of ASX-listed explorers suggests current market conditions have hindered the ability of Australia’s explorers to raise funds, resulting in a quarter of subdued operations and investment.
Financing cash inflows in the March quarter dropped by 55 per cent to $1.35 billion, and exploration and investment spending fell by 17 per cent and 51 per cent respectively.
Sherif Andrawes, BDO’s Global Head of Natural Resources, said the March quarter shows that Australian explorers are returning to “cash preservation mode” amid global economic unrest.
Sherif said that for the first time since September 2020, BDO’s analysis showed there was no growth in the number of ASX-listed exploration companies lodging an Appendix 5B, driven by a decline in IPO activity.
The March quarter saw 34 companies secure capital of over $10 million, led by gold, lithium and graphite companies. Sherif added that smaller-scale fund raises proved to be more prominent in this period.
“This quarter shows a distinct decline in the ability of our explorers to secure funding, which we attribute to the current market conditions being felt by most sectors right now,” Sherif said.
“But we are still seeing sustained demand for gold, lithium and graphite in response to the anticipated growth in the EV industry worldwide. So while the quarter did not deliver bright news in terms of operations and investment, the demand for these commodities – that we have here in abundance – provides a very positive future outlook for Australia’s explorers,” Sherif added.
“This quarter really highlights a prospector's dilemma – how to balance optimism and caution in this volatile market,” he said.
“During this industry-wide slowdown due to inflation and wavering commodity prices, gold has once again emerged as a safe-haven investment, with advanced-stage explorers favourably positioned. We also have government incentives supporting critical minerals explorers, and battery metals continued to attract investor interest over the quarter.”
The latest BDO findings show that the average cash balance per explorer has decreased from a peak of $13.2 million in June 2022 to $10.2 million in March 2023, but Sherif highlighted that this is still robust compared to historical levels.
“The majority of our explorers are still reporting sufficient funds for at least two quarters of operations, and those with less are optimistic in their ability to streamline costs or raise future funds,” Sherif said.
“This is no doubt a challenging period for Australian exploration companies but we are confident there is huge opportunity on the global stage for explorers once we push through the economic unrest the world is feeling.”
“At the end of the day, our explorers are still sitting in a strong position to meet the significant metal demands that will come from the world’s energy transition.”
Download the full Explorers Quarterly Cash Update
Read the story in the AFR: Mine prospecting boom ends amid economic gloom (afr.com)
Read the story in The West Australian: Funding for Australian explorers plunges amid volatile market: BDO | The West Australian