Juniors are preparing for their biggest exploration spend in three years
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In what is typically a slow month for exploration, junior resource specialist Rob Murdoch has crunched the numbers and come up with some surprising results.
How are the juniors faring in the current market?
ASX-listed junior resources companies expect to spend a total of $451 million during the March 2018 quarter — the largest total sector budget since Q4 2014.
This commitment is encouraging given that the March quarter is normally the quietest for exploration. The commitment is up nearly 50 per cent on Q1 2017 and up 7 per cent on actual Q4 2017 expenditure.
What is the rundown on their current financial position?
Most are just spending more.
In the current climate, companies have been able to raise more, so instead of the typical junior raising $2 million or $3 million, they are raising $4 million to $6 million.
They have more in the bank than we have typically seen of juniors.
We have seen capital raisings increase quarter by quarter and in the last six months it has become evident that people are willing to put as much as $8 million into them.
In Q3 last year juniors raised $869 million, followed by $1.32 billion the following.
If you break that down it means average cash in a junior jumped from $5.8 million in Q3 to $6.4 million in Q4.
With that, the number of stressed companies dropped from 160 to 100.
Which companies are expected to spend the most?
FAR Ltd (ASX:FAR) are set to spend $15 million on their oil and gas project in Senegal, and are by far the largest.
Other big exploration stories are Xanadu (ASX:XAM) spending $2.6 million, Nusantara (ASX:NUS) with $2.6 million and Centrex (ASX:CXM) with $2.4 million.
We have seen a lot of spending by oil and gas because the outlook is healthy and people have been able to spend cash.
But more generally, there is an improved outlook for the sector.
Where generally the March quarter is quiet because of the Australia wet season, most this year are spending the same.
Normally people get back in the field in April, with maximum expenditure in Q3 but the improvements in sentiment mean there is a lot of projects around.
Are there any sectors that particularly stand to gain?
Basically, the boom is in battery metals and whether that will last is still uncertain because perhaps the uptake in electric vehicles will be slower than some people think.
I think that at the moment we have a lot of good signs in the economy and there is such a head of steam building up for minerals that has really buoyed projects across the board.
I think we are heading towards 2019 as a boom for minerals.
Rob Murdoch is a Junior Resource Management specialist with 50 years of experience managing resource projects and companies, listed on ASX, TSX & AIM across a wide spectrum of commodities and from exploration to production.
Over the past two years Rob has developed AUSTEX as a specialist independent resources industry research and analysis advisory. Rob is a fellow of the AusIMM and a competent professional in geology and management.