Explorers June quarter: M&A and consolidation paves the path to prosperity

Explorers June quarter: M&A and consolidation paves the path to prosperity

Relative to the last two quarters of subdued activity across all segments of cash flow, the current quarter shows a reset in investor sentiment, marked by the increase in financing, investment and exploration spending as cash balances generally remained healthy.

Explorers secured $2.84 billion funding in the quarter, reflecting an increase of 111 per cent compared to the March quarter, and the average financing inflows per company was up 8.5 per cent to $3.65 million compared to the two-year average of $3.36 million. The proportion of companies raising over $1 million grew by 8.3 per cent with smaller-scale fund raises becoming less prominent, suggesting a loosening of previously constricted financial markets.

Sherif Andrawes, BDO’s Global Head of Natural Resources, said that both gold and lithium once again emerged as the commodities of the moment, for the second successive quarter, which suggests that market sentiment is being both propelled by the demand for battery metals, while still being tempered by economic volatility.

Exploration and investment expenditure experienced growth of 10 per cent and 151 per cent respectively, and explorers generally maintained healthy cash balances, with 82 per cent reporting cash balances of $1 million or higher.

Exploration expenditure in the June quarter increased by 10 per cent to $914 million, marking the turn of a declining trend that has existed since the September 2022 quarter. The average exploration spend per company rebounded by 12 per cent to $1.17 million from the previous quarter, illustrating increasing strength in exploration activity.

“Unsurprisingly, the largest exploration spends were among gold and lithium explorers, but we can also see a revival in copper exploration,” Sherif said.

The new report shows the number of companies lodging an Appendix 5B declined for the first time since September 2020, driven by a weak IPO market and an increase in consolidation activity.

Sherif commented that the decrease of eight companies from the previous quarter was a result of seven companies being acquired by or merged with larger companies, three companies delisting from the ASX, and two companies entering voluntary administration.

“We were anticipating a return in consolidation activity, particularly in the gold sector, and our new report confirms this. This quarter saw IPOs focussed on critical minerals, with lithium and rare-earth minerals taking centre stage. We expect this trend to continue,” said Sherif.

“Interestingly, four newly listed companies have entered our data set, and all of them have stepped into the critical minerals space. So while the IPO market may have cooled, there remains a healthy appetite in capital markets for explorers provided they are in this space,” he said.

“We see there being an increase in IPOs during the second half of 2023 with a focus on energy transition minerals as well as of Canadian companies looking to ASX for a secondary listing. Further, this is likely to be balanced by the trend that has seen explorers disappearing from the list through being acquired. The consolidation trend will definitely continue in the short term.”

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Read the story in the AFR: Exploration sector facing M&A wave, says BDO (afr.com)
Read the story in The West Australian: Number of ASX-listed explorers falls for first time in three years amid wave of consolidation

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