Cash isn’t being tossed around like confetti, but don’t call the end of mining’s bull market just yet
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Belts have tightened and cash is no longer being tossed up for junior explorers like confetti, but a mining expert says it’s too early to call the end of the mining bull market just yet.
BDO’s latest quarterly explorer cash update showed a massive 45% drop in capital raisings from the record $3.75 billion injected straight into the veins of ASX explorers in the December quarter to a relatively more modest $2.07 billion in this year’s March quarter.
But BDO’s head of global natural resources Sherif Andrawes says the market remains historically hot for junior explorers who want to raise cash or list on the stock exchange.
“If you look over the period we’ve been doing the survey which is since 2013, it would be one of the higher amounts that’s ever been raised over the period — not the highest because the highest was previous quarter, but it’s still well above the long term average,” he told Stockhead
“If we were sitting in 2015, 16, 17, 18, and we raised this amount we would be going ‘wow, this is huge’.
“So I would say it’s still very healthy, the money’s coming in.”
There were other signs of decline from the record fourth quarter, with the number of companies raising more than $10 million dropping from 71 to 44, in line with the average of 44 over the past eight surveys.
Net investing outflows also dipped from $1b to $651m, while exploration expenditure fell 14% from an eight-year high of $973m to $832m.
But in many senses those numbers remain very healthy, Andrawes says.
Against the backdrop of the Russian invasion of Ukraine, questions about commodity demand and interest rate rises, explorers still spent more than at any time in the past two years bar the previous two quarters.
“I think there’s two different ways to look at this,” Andrawes said.
“One is that the top of the market is behind us and the previous quarter to December was the peak and now we’re on the downward side of it.
“The other way of looking at it is that the December quarter was an aberration.
“It’s just a big one-off number and if you go back to September, we’re pretty much in line with the September quarter and March traditionally, seasonally, is always a bit of a quieter quarter every year anyway.”
Companies making 5B expenditure statements for the first time, reflecting the number of IPOs on the market, also dropped significantly from an astonishing 40 in the December quarter to 16 in March.
Andrawes said the market for new listings remains strong even if it won’t match the feverish pace of last year’s IPO market.
“One thing we’re seeing is that the number of IPOs is reduced a wee bit, but it’s still coming through,” he said. “I know across my desk, we’ve probably got about six to eight junior explorer IPOs that we’re doing still for next quarter so that’s still healthy.”
One reason many explorers did not head to the market in the March quarter, according to Andrawes, is because they are already cashed up.
Indeed many are stocked to the gills.
87% of companies making 5B reports — a category making up almost 90% of the resources stocks on the ASX — had more than $1m in the bank at March 31, roughly in line with the 88% in the previous two quarters.
The average cash balance of $11.45m is 23% higher than the two year average, with more than 50% boasting upwards of $4m compared to ~25% two years ago.
Raisings were led by commodities favoured for their role in the energy transition, with graphite minerSyrah Resources (ASX:SYR) the standout raising $240 million for its Tesla-backed Vidalia anode materials plant in the USA.
Gold stocks collected $214.35m and lithium companies picked up $141.46m, while nickel and cobalt firms ($108.64m and $102.16m respectively) were also among the most successful fund raisers.
One surprise commodity, back in vogue after years in the doldrums, was uranium. Four companies picked up $160.79m from investors including $92m for Boss Energy (ASX:BOE) to fund its decision to restart the Honeymoon uranium mine in South Australia.
Andrawes says energy transition commodities are receiving strong investor support, while ESG was becoming a key focus for financiers and investors when it came to bankrolling miners and explorers.
“I think the difference we’re seeing now compared to say two years ago, is that when companies in the sector are looking to raise money, the financiers are asking questions about ESG standards and compliance with reporting standards,” he said.
“So I think more and more companies in the exploration sector in order to raise money are having to turn their minds to how do we actually demonstrate we’re meeting the ESG standards and reporting against them and those that aren’t are going to find it more difficult to raise money.”