June quarter: ASX listed explorers spending hits seven-year high of $666 million

June quarter: ASX listed explorers spending hits seven-year high of $666 million

Latest research from business advisory firm BDO into the cash position of ASX listed explorers shows spending hit a seven-year high of $666 million, representing a 34% increase over the two-year average.

The uptick in exploration expenditure reflects recent quarters of successful fund raising, strong commodity prices and increased confidence in the resources sector since the COVID-19 outbreak.

“Exploration companies once again raised a record-breaking level of funds in the June 2021 quarter with explorers pocketing a total of $2.54 billion in funds,” said Sherif Andrawes, BDO’s Global Head of Natural Resources.

“If this trend continues the sector may see average exploration expenditure hit record highs by the end of the 2021 calendar year.”

“Exploration expenditure shows no signs of slowing down. The initial concerns around COVID-19 and its impact on the exploration sector have been swiftly mitigated by the prompt sector recovery underpinned by strong commodity prices and favourable financial markets, which in turn have resulted in the sector raising an unprecedented amount of funds to spend on operations.”

The results are positive signals for the exploration sector, with exploration spending exhibiting the expected increase following the flurry of fund raisings over the last three quarters. 

“Our key observation for the June 2021 quarter is that the financial health of the exploration sector continues to grow from strength to strength, especially now that healthy cash positions have translated to money being invested in the ground,” he said.

Sherif said that of the ten largest exploration spenders in the June 2021 quarter, four were oil and gas companies, three were gold companies, two were focused on nickel exploration and one was a rare earths explorer.

The favourable market conditions are further affirmed by the perennially high level of IPO activity on the ASX, with 21 exploration companies that recently completed IPOs lodging Appendix 5Bs for the first time in the June 2021 quarter.

“A record number of 60 companies managed to raise funds of $10 million or more, led by gold, oil & gas and sulphate of potash explorers,” Sherif said.

The report also showed a sharp increase in the number of companies lodging Appendix 5Bs which grew from 658 in the March 2021 quarter to 678 in the June 2021 quarter.

According to the BDO report, current cash balances indicate that exploration companies still have the capacity to spend more on exploration, but the extent to which an increase in expenditure is observed will likely continue to be limited by availability of resources, travel restrictions and skilled labour shortages.

Despite such limitations, exploration companies will continue to be very attractive to investors.

“Demand for certain commodities, most notably energy metals, is more likely to increase than decrease over the coming years and in our view, the data from the June 2021 quarter gives promising indicators that this activity is still sustainable at least to the end of the year and into the early parts of 2022,” said Sherif.

Read the full Explorers Quarterly Cash Update