Explorer Quarterly Cash Update: September 2018
12 February 2019
BDO’s report on the cash position of Australian-listed explorers for the September 2018 quarter (based on quarterly Appendix 5B reports lodged with the ASX) indicates the natural resources sector in Australia had a mixed performance, with the highlight including a 20% increase in exploration expenditure and the lowlight being a 45% decline in financing cash inflows.
The increase in exploration expenditure reflects the favourable economic and market conditions in recent quarters which have buoyed Australian-listed explorers. The growth in exploration was reinforced by Australian Bureau of Statistics (‘ABS’) data which reported total metres drilled by exploration companies increased by 5.8% for the September 2018 quarter. Interestingly, this was 22.5% higher than the September quarter in 2017.
Net investing cash out flows for ASX-listed explorers declined by 62% in the September quarter to $223 million. However, this was from a high base of $592 million in June 2018, with the average over the seven quarters from September 2016 to March 2018 being $221 million.
The September quarter witnessed a decline in ASX-listed exploration companies to lodge Appendix 5B reports, breaking the recent upward trend. A total of 688 Appendix 5B reports were lodged in the September quarter, down from 705 in the June quarter and 702 in the March quarter. Notably, during the September quarter, 5 exploration companies were delisted from the ASX, which contributed to the overall decline.
The September quarter was characterised by higher share market volatility caused by rising concerns about the impact of global trade tensions and rising interest rates on economic growth. Larger companies were more resilient to the volatility with BHP Group Limited (‘BHP’), Fortescue Metals Group Ltd (‘FMG’) and Rio Tinto Limited (‘RIO’) continuing with major greenfield and expansion projects.
The September quarter saw the continued emergence of the lithium mining industry in Australia, with a number of companies announcing plans to build new lithium refineries and processing plants. This included Australian lithium miner Neometals Ltd, which revealed plans to build a downstream processing plant at Kalgoorlie for an estimated cost of $200 million. The refinery is expected to create more than 100 jobs and is the fifth lithium refinery planned for WA. This trend reveals the desire of Australian-based mining companies to capture the higher value that can be generated from downstream lithium processing.
The raft of new major projects revealed by Australia’s largest miners including BHP, Rio and FMG is positive for the Australian economy. However, the global political landscape is tenuously poised and we believe the outcome of trade negotiations (positive or negative) between China and America will have a significant influence on the trajectory of future economic growth and commodity demand.