Explorer Quarterly Cash Update: June 2019
21 October 2019
BDO’s report on the cash position of Australian-listed explorers for the June 2019 quarter (based on quarterly Appendix 5B reports lodged with the Australian Securities Exchange (‘ASX’)) provides positive signals for the exploration sector with the highlights being the increase in financing inflows and exploration expenditure. Total exploration spend exceeded the two year average ($411 million) and financing inflows reverted toward the two year average ($1.37 billion) after declining to $908 million in the March 2019 quarter.
The Australian resources sector performed solidly in the June quarter, with the S&P/ASX 200 Resources Index increasing by 4.3%. The increase can partly be attributed to a continuation of high prices for commodities like iron ore and gold and monetary easing by central banks, which typically increases liquidity and can have a positive impact on capital markets. The strong rally experienced by the Australian resources sector since the start of 2019 appears to have given some explorers greater confidence to raise capital and continue to invest more in the ground.
BDO is seeing continuation of a two-speed market, where explorers like Gold Road Resources, which had favourable commodities and projects nearing production, are finding it easier to raise capital. Smaller explorers are continuing to struggle to raise capital through the share market, which is partly being overcome by some explorers seeking funding from larger mining companies in exchange for farm-in agreements A recent example was Musgrave Minerals’ (‘Musgrave’) agreement to give Evolution Mining (‘Evolution’) a 75% stake in Musgrave’s Cue gold project, in exchange for Evolution spending $18 million on exploration over the next five years.