June 2022 quarter: exploration sector makes a notable turnaround and breaks the record with over $1

Latest research from business advisory firm BDO into the cash position of ASX-listed explorers shows a significant turnaround following the March quarter, with growth across exploration expenditure and capital raisings back to record levels.

Sherif Andrawes, BDO’s Global Head of Natural Resources, said that the first quarter of the 2022 calendar year suggested there would be a tightening of activity across the sector due to cost inflation, volatile commodity prices, tight labour markets and increased geopolitical risk. Sherif said that expected tightening is yet to be seen – if it will be at all - with the June quarter delivering strong performance and breaking the record billion-dollar mark for exploration spend.

The exploration spend in the June 2022 quarter represents a 25 per cent increase from the March 2022 quarter, a 7 per cent increase from the previous record of $973 million set in the December 2021 quarter, and a 57 per cent increase over the two-year average of $663 million. In addition, the average exploration spend per company also increased to a nine-year high of $1.35 million, 21 per cent more than the $1.11 million in the March 2022 quarter.

“For the first time since BDO started our analysis in June 2013, total exploration expenditure has surpassed the $1 billion mark. This quarter we saw an increase in the number of companies that raised funds of $10 million or more, from 44 in the March quarter to 61 this quarter. These 61 companies accounted for 77 per cent of total funds raised, with lithium flagged as a clear preference for investors, eclipsing other commodities in total funds raised by a substantial margin,” Sherif said.

“Synonymous with this trend, we have again witnessed the presence of other battery metals such as graphite, nickel and cobalt amongst the cohort. In the coming periods, we anticipate that the flurry of funds that have been put towards lithium and other battery minerals will start to translate more substantially into exploration expenditure as companies seek to accelerate their projects to address worldwide concerns around future supply,” he said.

“As one would expect, gold and oil and gas also performed well, which is consistent with historical periods where these commodities are traditionally the favourites during times of global economic uncertainty.”

BDO’s latest report also reveals that average cash balances for explorers grew 15 per cent from the March quarter and the cash position of the wider sector remains at historic highs. Sherif said all these indicators paint a very encouraging picture for the sector.

The number of companies that lodged Appendix 5Bs in the June quarter increased to 772, up from the 750 reporting companies in the March quarter. “This may be surprising to some, but IPO activity regained traction this quarter, following the decline we saw in the March quarter. Our findings show that 29 companies that recently completed an IPO lodged an Appendix 5B for the first time in the June quarter, representing an additional 13 IPOs over the March quarter,” Sherif said.

Sherif noted it was positive to see “future-facing commodities continuing to play a critical role in the quarter, comprising a significant portion of new ASX-listings and financing inflows.” He said he expects this trend to continue given that the global electrification movement is still in its infancy.

“We expect that inflationary pressures will impact exploration and salary costs, but it is still too early to predict how capital markets will react, given that Australian-listed explorers are well-placed to service the growing demand for battery minerals and other essential commodities,” Sherif said.

“Our explorers have faced a lot this year - rapidly tightening inflation, labour shortages and supply chain troubles – yet they have turned a pessimistic outlook around and delivered notable growth this quarter,” he said.

“There are positive signals for ASX listed explorers, particularly for those exposed to the energy transition whether this is for battery minerals, transmission infrastructure or other forms of zero carbon energy sources such as uranium. Funds are certainly available and most likely will continue to be as Australia is seen as a responsible and low-risk source of these minerals.”

Download the Explorers Quarterly Cash Update

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Read the story in the AFR: Mining exploration spend of $1b hits record levels (afr.com)

Read the story in Stockhead: https://stockhead.com.au/resources/market-volatility-be-damned-investors-in-junior-explorers-are-still-willing-to-risk-it-for-the-biscuit/

Read the story in The West Australian: Race to decarbonise drives record $1b Australian exploration spend in June quarter, BDO data shows | The West Australian