September 2022 quarter: spending surpasses billion-dollar mark for second consecutive quarter, signa

Latest research from business advisory firm BDO into the cash position of ASX-listed explorers reveals that spending has surpassed the billion-dollar mark for the second consecutive quarter, signalling sector strength despite uncertain capital markets as inflation and interest rates rise.

Total exploration spending reached a record high of $1.07 billion in the quarter, with Sherif Andrawes, BDO’s Global Head of Natural Resources, saying it represented the highest exploration spend recorded since BDO commenced its analysis in June 2013.  

Sherif said financing cash inflows fell by 39 per cent from the June quarter, which is no surprise and a reflection of the current uncertainty in capital markets. “In spite of this, the sector’s cash position remained strong with 86 per cent of explorers recording cash balances of $1 million or more, highlighting the strength of the sector in this period of economic gloom,” he commented. 

Forty seven companies raised funds of $10 million or more, with gold explorers back on top as the prime recipient. Twelve companies completed an IPO over the quarter, which represented a slowdown from the 29 completed in the June quarter. 

“We expected some slowdown given the global economic uncertainly but despite this our latest report shows positive signals for the sector, as record high exploration expenditure and growing investment continues to be well-supported by high cash balances,” Sherif said. 

“The most significant milestone from this quarter is our explorers hitting that $1 billion mark for the second consecutive quarter,” he said. 

“Another big event for this quarter is the growing prominence in battery mineral exploration. Historically the top exploration spends have been dominated by gold and oil and gas companies, but this is shifting. In this quarter alone we have seen four battery mineral companies in the top 10 exploration spends. This is in line with our expectations of prior quarters after the observed surge of funds going into the battery mineral sector from both equity and debt markets.” 

BDO’s latest report also shows investment spending by the sector returned to levels recorded in the December 2021 and March 2022 quarters. These levels of investment spending are markedly higher than historical levels, supported by strong cash balances and continued funding following the COVID-19 recovery. However, over the same period, the proportion of companies reporting nil investing cash flows has been broadly increasing and grew by 4 per cent this quarter, indicating that the recent interest rate rises may have led to higher cash preservation.  

“Although the cash position of the sector appears to have weakened with a 13 per cent decline in the total reported cash balance, we see this largely as a reversal of the 18 per cent increase experienced in the June quarter. This indicates that the net funds raised in the June quarter largely translated into money spent in this quarter - primarily on exploration - which is a positive sign of the continued willingness of explorers to invest in the drill bit,” Sherif said. 

“Despite facing a range of headwinds over the September 2022 quarter, our explorers continued to press on with their projects, with battery mineral explorers in particular demonstrated significant resilience against the economic slowdown,” he said. 

“While explorers might need to make some strategic adjustments to account for rising cost pressures, on the whole the sector is well poised to weather any forthcoming economic turbulence.” 

Read the full Explorers Quarterly Cash Update.

Read the story in the AFR: ASX-listed gold, rare earths, oil and gas explorers splash $1.07b in hunt for assets despite economic gloom (afr.com)

Read the story in The Australian: ASX explorers splash $1bn, more to come | The Australian