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The hibernating resources sector is stirring, with notable increases in investment activity and financing cash flows

26 September 2017

Latest research from BDO shows further positive signs in the resources sector. For the quarter ending 30 June 2017, net investing cash flows from Australian-listed explorers more than doubled, increasing by 103% from a net outflow of $133 million for the March quarter to $269 million. This surge in investment indicates that exploration companies may be actively seeking undervalued assets in anticipation of an imminent uplift in the market.

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

Total exploration expenditure increased by 11% for the June 2017 quarter from $305 million to $338 million and median exploration expenditure increased by 30% to the highest level since the June 2014 quarter.

Sherif Andrawes, National Leader, Natural Resources at BDO said “As expected, the revival of increased exploration activity has continued this quarter. We’ve seen optimism build through positive energy and attendance at the recent Diggers & Dealers, Africa Down Under, and RIU Good Oil conferences, and we expect to see further capital raised towards the end of the calendar year. Positive talk has now turned into actual deals.”

Net operating cash outflows increased from $514 million to $717 million in the June 2017 quarter, the highest since the March 2015 quarter. “Companies are spending more cash on investing and exploration. It’s encouraging to see that they’re doing this whilst controlling their administration costs, which increased by only 11% in the quarter.”

“We expect to see further capital raised during the next few months as we head towards the end of the calendar year. M&A activity should continue. Vendors are typically narrowing their focus to a limited number of key projects, providing opportunity to acquirers with interests in advanced niche projects.”

“Furthermore, the number of exploration companies exiting the market appears to be plateauing, which may indicate that we are approaching a point of inflection and that the resources sector is entering an upward trajectory.” Mr Andrawes said.

Key findings of the quarterly update reveal:

  • Net investing cash flows more than doubled for the June 2017 quarter, increasing by 103% from a net outflow of $133 million for the March 2017 quarter to $269 million
  • The average cash balance of exploration companies declined marginally by $0.14 million for the quarter, from $5.93 million at 31 March 2017 to $5.79 million at 30 June 2017
  • For the quarter ended 30 June 2017, 696 companies lodged an Appendix 5B report, which was two less than the 698 to lodge in the March 2017 quarter yet six more than the 690 companies that lodged during the December 2016 quarter
  • Total exploration expenditure increased by 11% for the June 2017 quarter from $305 million to $338 million and we saw median exploration expenditure increase by 30% to the highest level since the June 2014 quarter.
  • The number of companies that raised in excess of $10 million doubled this quarter, increasing from 15 in the March 2017 quarter to 30 for the June 2017 quarter.