Lithium explorers in vogue with investors as downward trend is reversed during March 2019 quarter

11 June 2019

Latest research from global firm BDO has found that cash inflows into the ASX-listed ‘Juniors’ increased on the December quarter, with lithium explorers in vogue amongst investors.

Financing cash inflows for the March 2019 quarter were $908 million, representing an increase of 7% from $848 million in the December 2018 quarter. Of this, $154 million of the cash inflows were from lithium exploration companies, which is more than double the $76 million that was raised last quarter.

Sherif Andrawes, Global Leader, Natural Resources at BDO, said although the financing inflows for the March quarter was still below the two-year average of $1.34 billion, it was encouraging to see the downward trend for financing inflows reversed for the first time since the June quarter of 2018.

“The three quarters leading into June 2018 were a golden period for the ASX-listed Juniors, when most raised sufficient funds to see them through the next few years. While we’re not back at that level of investment, the March quarter is a positive result for the Australian resources sector with a notable increase in capital raising activity, especially by lithium explorers,” Mr Andrawes said.

During the quarter lithium explorers raising in excess of $10 million in finance raised a total of $123 million. This was a tenfold increase on the total cash raised ($12 million) by equivalent lithium explorers in the December quarter of 2018. The positive conditions in the March quarter may have explained the share markets’ renewed focus on higher risk commodities like lithium.

Mr Andrawes said five lithium companies raised in excess of $10 million during the quarter, with all of them opting for equity raisings, showing an investment appetite from the market.

While the upturn in the March quarter is positive news, junior explorers still appear to be finding conditions tough.

“There is no doubt that junior explorers in general are finding cash hard to come by and as a consequence are reducing exploration and administration spend. But it’s important to mention that this does not mean that exploration has reduced – in fact the level of exploration occurring actually appears to be healthy. Rather than greenfields exploration it appears to be more directed to brownfields. Relevantly for exploration companies, exploration is increasingly being funded by larger mining companies through farm-in or other equity arrangements. We are seeing exploration companies now being carried through to feasibility or even to production. In this way the expertise of exploration companies is continuing to be used but being funded by larger companies who recognise that they need to replenish their assets and that exploration is not their strength,” said Mr Andrawes

Mr Andrawes also pointed out that while some analysts are saying that IPOs are dying in WA, BDO’s pipeline of upcoming IPOs certainly suggests otherwise.

“We’re expecting a strong resurgence in IPOs generally in the second half of 2019 including in the exploration sector,” he said.

The BDO Explorer Quarterly Cash Update is based on the cash position of Australian-listed explorers based on quarterly Appendix 5B reports lodged with the Australian Securities Exchange (ASX).

Key findings of the quarterly update reveal:

  • Financing inflows increased by 7% in the March quarter to $908 million; up from $848 million in the December quarter of 2018. While this is below the two-year average for ASX-listed explorers, it is encouraging to see the downward trend for financing inflows reversed for the first time since the June quarter of 2018
  • The quarter saw a notable increase in capital raising activity by lithium explorers. In the March quarter of 2019, lithium explorers raising in excess of $10 million in finance raised a total of $123 million, up from $12 million in the December quarter. The positive conditions in the March quarter may have explained the share markets’ renewed focus on higher risk commodities like lithium
  • A total of 680 Appendix 5B reports were lodged during the March 2019 quarter, down from 693 in the December quarter. Notably, during the March quarter, two new exploration companies were admitted to the ASX through an initial public offering (‘IPO’) and as at the last trading day of the March quarter (Friday 29 March), both companies were trading at or above their issue prices
  • The five lithium companies that raised in excess of $10 million for the quarter all opted for equity raisings which shows that there is an investment appetite from the market. Pilbara Minerals Limited (‘Pilbara Minerals’) was the company with the highest raising, with a $50 million equity placement to Jiangxi Ganfeng Lithium Co. Limited (‘Ganfeng’).