March quarter: Flood of funding into battery minerals & clean energy companies as investors tailor t

Latest research from business advisory firm BDO into the cash position of ASX listed explorers provides positive signals for the sector, with evidence of a definitive COVID-19 recovery seen from unprecedented levels of financing inflows, a strong cash position and improved investment and exploration spending since early 2020. 

Exploration companies raised $2.37 billion in the March 2021 quarter, up 7 per cent from the $2.21 billion in December. Of those companies, 48 raised funds of $10 million or more and made up 75 per cent of the total funds raised. Of those 48 companies, there were ten gold companies, nine lithium companies, four uranium companies, four rare earth metals companies, four graphite companies and the remaining 17 companies were across 14 different sectors, most notably copper-gold, copper and oil and gas.

This resulted in 80 per cent of exploration companies reporting cash balances of $1 million or more, the highest proportion recorded since BDO commenced this analysis in 2013.

Sherif Andrawes, BDO’s Global Head of Natural Resources, said the major observation from this quarter’s data is the flood of funding toward battery minerals and clean energy companies, which is in line with growing ESG initiatives including electric vehicle adoption and lower carbon emission targets.

“We know that the battery minerals industry has been hot in recent times but the dominance of lithium and other battery minerals companies this quarter has taken us by surprise,” Sherif said.

“We are seeing investors tailoring their preference in line with global trends and Australian battery minerals explorers have capitalised on this opportunity to raise funds for the advancement of their operations,” he said.

Sherif said another overarching observation from the quarter is that the positive financial indicators observed in the previous quarter have largely persisted.

“The substance behind these indicators, however, has shown a gradual transition away from just gold, which during the COVID-19 recovery period was the preferred safe haven asset. Instead, funds are now flowing toward battery minerals and clean energy commodities such as lithium, graphite and copper,” he said.

Whilst the total amount of funds raised during the quarter showed a slight increase, Sherif said there is some evidence to suggest that the frequency of capital raises in the sector had slowed with 28 per cent of exploration companies raising $1 million or more, down from 39 per cent and 36 per cent in the September and December 2020 quarters respectively.

He said the 7 per cent growth could mainly be attributed to several large raises within the sector, however, the lower number of capital raises could be due to the fact that the average cash position had grown by 17 per cent to $9.70 million, with 81 per cent of companies reporting sufficient funds to support operations for more than two quarters.

“This may have negated the urgent need for explorers to raise funds in the March quarter, as companies turned their focus instead toward spending in the ground and investment,” he said.

Sherif said the first quarter of 2021 has proven to be a strong start to the year for Australian explorers, and is showing signs of a transition away from mere recovery to a new focus on ESG.

“ESG has become an inescapable point of emphasis in the world today. The global push for lower carbon emissions and clean energy has put a spotlight on EV-related commodities and greener energy alternatives, which we are already seeing in the March quarter,” he said.

“The way in which these commodities are sourced is also a key consideration point for today’s investors. For example, even though cobalt forms a major component of rechargeable batteries used in EVs, almost 70 per cent of the world’s cobalt is sourced from the DRC, which is often associated with ESG concerns around ethical labour and sustainability. Australia, having almost 20 per cent of the world’s cobalt reserves, is well positioned to capture a significant portion of future demand.”

“Australian explorers will need to continue to place greater emphasis on demonstrating a mature approach to ESG matters in their operations to continue capitalising on this trend,” he said.

Download the full Explorer Quarterly Cash Update

Read the story in the AFR: Decarbonisation drives Australia’s modern exploration boom (afr.com)

Read the story in The Australian: Junior miners hit paydirt, raising $2.37bn in March quarter, says BDO (theaustralian.com.au)