• BDO data shows ASX-listed explorers spent a record $1.07b in the September quarter, despite a 39% fall in capital raisings
  • BDO global head of natural resources Sherif Andrawes says the trend is likely to be positive amid rising demand for ‘green metals’ like lithium, nickel and copper
  • Gold unseats lithium as the top segment for capital raisings in September

Exploration stocks on the ASX spent a record $1.07 billion exploring for lithium, gold, nickel, copper, oil and gas and a host of other commodities, the most since business advisory firm BDO began tracking the junior resources sector in 2013.

And despite a 39% drop in financing inflows, BDO global head of natural resources Sherif Andrawes says the demand for minerals to build electric vehicles and fuel the energy transition should keep exploration expenditure on an upward trend in the coming years.

“The demand for future facing minerals of all types is such that we are likely to see increasing amounts raised and spent over the coming few years,” he said.

“That will be supported by the ever present interest and demand for gold.

“Of course we are likely to see volatility in this with short term reactions to macro-economic and geo-political events but the underlying trend is likely to be positive.”

As a point of reference, ASX-listed explorers spent just $431.1m in September 2020, according to today’s BDO Explorer Quarterly Cash Update.

While the splurge was just 3% higher than the June quarter, it was 44% above the two-year average, with average exploration spend per company lifting to a nine-year high of $1.38m, more than double the same period in 2020.

Financing cash in-flows fell from around $3 billion in June to $1.82 billion, with average per company flows of $2.35m falling 36% below the two-year average of $3.65m per firm.

While that reflects the drop in market sentiment related to rate rises and lower commodity prices, Andrawes warned against viewing the September drop in capital raisings as a sign of a peak.

“There are a number of factors at play here, including that many companies are still very well funded compared to long term average funding levels, and that it was more difficult to raise funds for certain commodities during the quarter,” he told Stockhead.

“We saw 38 per cent of companies not raise any funds during the quarter, which is the highest proportion for two years. This may be due to many already having sufficient cash while others may have struggled.”

BDO exploration expenditure graph
Exploration spend among ASX juniors is at a 9 year high. Pic: BDO


Gold tops the cash raisings, but battery metals surge in exploration spending

After playing second fiddle to lithium and battery metals for much of the year, gold companies returned to their traditional spot atop the fund raising table.

Of the 47 explorers who raised more than $10m, gold explorers pulled in $289.17m, with oil and gas second at $168m, rare earths third at $165.94m and lithium stocks only fourth at $115.52m.

Genesis Minerals (ASX:GMD) delivered the largely single raising, via its ~$97m equity placement to fund its merger with Dacian Gold (ASX:DCN).

However, cashed-up battery metals explorers made up four out of the top 10 exploration spends, in line with the surge of funds for battery metals companies earlier in 2022 “from both equity and debt markets”.

“(The rise in exploration expenditure) tells us a number of things,” Andrawes said.

“Firstly that explorers have sufficient cash to support higher levels of exploration spend.

“Also, that in the battery minerals space the demand for offtake is such that companies are motivated to accelerate exploration programs to meet this demand. There is also however an inflationary element to the increase caused by increasing salary and other costs.”


China not a major headwind for juniors

China’s struggles with Covid and the maudlin state of its economy and property market have hammered prices for commodities like iron ore, copper and aluminium this year.

But new factors, including the desire of Western economies like the US and EU to diversify their supply chains away from China, will mean Chinese demand will be less important in the coming years than it has been in recent decades for junior explorers.

“China always has a major influence on the resources market but that can and will vary. For example, iron ore companies are underrepresented in the explorer data as it tends to be the domain of larger entities,” Andrawes said.

“So China’s dominance as a consumer of iron will have reduced impact on our data. In other areas such as rare earths and battery minerals, there is a demand for diversification of sources of minerals and when this is coupled with an overall increased demand there is likely to be a continued increase in interest in those areas.”

Uncertainty around China could also revive safe haven interest in gold, Andrawes said.

But there were some other signs of increased stress in the September quarter, which was characterised by rising interest rates and falling commodity prices.

Just 12 explorers IPO’d in the three months to September 30, down from 29 in the June quarter, while the total cash balance of the sector fell 13%.

However, BDO views this as a reversal of the unexpected 18% rise in June, with 86% of explorers still boasting cash balances greater than $1m.

That’s up from 78% at the end of 2020.

BDO explorer cash reserves
Explorers remain cashed up, with 86% of ASX resources juniors holding more than $1m in cash. Pic: BDO