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Explorer Quarterly Cash Update March 2020

26 May 2020

The latest BDO Explorer Quarterly Cash Update reported only 12 companies raised funds of $10 million or more in the March quarter. This is down from 27 companies in the December 2019 quarter, with net investing cash outflows reduced by 45%.

The new research demonstrates a complete reversal of the upward trend reported during 2019, reversing at the point the COVID-19 crisis hit. While the impact of the crisis varied across the exploration sector, its adverse effects on debt and equity markets was clear across the board.

Total financing cash inflows reached a four-year low of $834 million, plunging 48% in the March quarter. Despite this, total and average exploration expenditure remained consistent throughout, decreasing by only 0.8% since the December quarter.

The research also indicates a lack of government support for junior miners despite initiatives like JobKeeper.  The scheme is only available to companies that can prove a 30% reduction in revenue, which explorers are unable to do. Subsequently, this has resulted in severe cost reduction measures and leaner administrative costs structures to conserve cash until equity markets stabilise.

In spite of this, investors continue to view gold as a safe haven asset with prices reaching a high (up to 31 March 2020) of US$1,680/oz amidst the global pandemic as well as prevalent M&A activity in the sector. Unfortunately the same cannot be said for other commodities within the sector, with oil & gas, copper, nickel, zinc and precious metal prices falling over the March quarter.

Based on the data from this quarter BDO expects exploration companies will fall into two categories.  The first being those junior explorers in cash preservation mode, scaling back to survive the impact of COVID-19.  The second group being the larger explorers and developers with advanced projects and better positioned to capitalise on the current market opportunities.

BDO expects this gap to widen throughout the next quarter.