Farm-ins are the name of the game for junior resource companies as they seek to secure funding to progress their exploration projects.

Besides preventing any dilution of their shares, farm-ins also serve to address the challenging market conditions that have weakened investor confidence at the speculative end of the market.

In its latest research report, global advisory firm BDO said that Australian-listed explorers continued to be locked in a two-speed market where explorers like Gold Road Resources, who have favourable commodities and projects nearing production, are finding it easier to raise capital.

“Our smaller explorers are continuing to struggle to raise capital through the share market, which is partly being overcome by some explorers seeking funding from larger mining companies in exchange for farm-in agreements,” BDO Global Head of Natural Resources Sherif Andrawes said.

One recent example of this trend is Apollo Consolidated (ASX:AOP) attracting Independence Group (ASX:IGO) to farm-into its early-stage Louisa nickel-copper project located near Fitzroy Crossing in WA’s Kimberley region.

Independence has agreed to spend a minimum of $350,000 on the project within 24 months and may then elect to spend a further $3m within four years to earn a 75 per cent interest in the project.

Another recent example is Musgrave Minerals (ASX:MGV), which brought in Evolution Mining (ASX:EVN) to help look for gold at its Cue project in Lake Austin, around 700km north of Perth.

Under the earn-in agreement, Evolution can take a 75 per cent stake in the asset by contributing $18m in capital over the next five years.

Evolution will also take a 4.59 per cent stake in the Musgrave through the purchase of 18,587,361 shares priced at 8.07c via a share placement.

At the beginning of this year, Oz Minerals (ASX:OZL) committed to spending $8 million over two years to fast track the search for major new discoveries at six of Red Metal’s (ASX:RDM) early stage base and battery metals projects in Western Australia and Queensland.

After spending the minimum amount on a project — and if something is found — Oz can trigger the formation of a joint venture on any of these projects by spending $15m to earn 51 per cent of the project in question.

Oz Minerals has also taken up a 70 per cent interest in Cassini Resources’ (ASX:CZI) West Musgrave project after satisfying the $36m spend commitment towards the Neo-Babel pre-feasibility study and regional exploration.

What these deals all have in common is that they provide junior explorers the means to define the potential of their projects or to focus on other projects while their larger partner performs the heavy lifting on their joint venture.

Veteran miner and Ora Gold (ASX:OAU) director Phil Crabb told Stockhead that farm-ins were also beneficial to the larger miners.

“The smaller companies are more energetic, they get out on the field more, they probably make more discoveries,” he said.

“Farm-ins also take out some of the risk for the bigger companies and gives them a bigger spread of the field. They could be picking from 30 companies, they can’t do that much exploration by themselves.”

Looking ahead, BDO added that with smaller explorers continuing to struggle with raising capital for exploration, those with exciting exploration prospects would likely find partnering with a “big brother” to be an appealing option.

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