Ground Breakers: Big wheels keep on turning, explorers keep on drilling
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Like the Proud Mary that just keeps rolling on the river, mining companies are showing little sign in slowing down when it comes to splashing the big bucks on exploration.
The latest figures from the venerable lot at the Australian Bureau of Statistics show Covid outbreaks and wet weather were unable to halt the progress of Aussie explorers, who splashed $848.7 million on exploration drilling in the March quarter.
While it marks a big drop off from the $951.7m spent in December and $997.6m in September last year, that’s a massive 15.5% up on the $734.8m splurged in the March quarter of 2021 and the strongest March quarter bar the first three months of 2012.
In seasonally-adjusted terms, taking into account the March quarter’s fewer days, Christmas break and traditional wet weather, exploration expenditure actually rose from $924.9m to $968.5m.
However, there are hints of inflationary pressure creeping in, with the 2,657,300m drilled lower than the 2,793,800m in the March quarter of 2021 despite the more than $110 million increase in spending.
As expected, despite a drop off from the December quarter, WA ($526.2m) led the spending tables with around 62% of investment in drilling occurring in the mining state.
But South Australia ($32.2m) was a strong contributor, recording its highest exploration investment in around eight years.
Figures for New South Wales were also a record for a March quarter at $82.7m, while Queensland saw $112.2m spent on exploration despite heavy rainfall that curbed industry and hit production at its regional coal mines.
Spending in Victoria, Tasmania and the NT was all down.
There were few notable moves in commodities, with nickel/cobalt and copper exploration spending remaining elevated and gold ($363.5m) receiving the most love.
Iron ore and uranium were the two commodity classes that saw an increase in exploration expenditure as prices climbed for the two commodities, with iron ore exploration investment lifting from $130.8m in December to $139.4m in March and uranium drilling increasing from $3.2m to $3.7m.
The continued strength of investment in drilling highlights the smooth state of the capital markets up to the start of war in Ukraine, which started in late February.
Junior companies have found themselves in the sweet spot to raise cash for drilling as investors heading into the latter stage of the mining cycle shift capital from large caps to small caps to chase larger gains.
Capital raisings have also been prevalent amid the cohort of battery metals stocks focused on copper, lithium, nickel and cobalt – dominated by junior players – as the world’s hunger for metals needed for decarbonisation and especially electric vehicles becomes a major investment theme (even if it is one that could have some lean days ahead).
According to figures from Austex Resource Opportunities, Australian listed juniors reporting quarterly 5B statements raised $1.567 billion in the first quarter of 2022, down from an $3.176 billion in the December quarter of last year but still well above pre-Covid levels.
China’s lockdowns are showing some sign of easing, firing up the iron ore market.
Iron ore prices lifted above US$137/t overnight and futures are again in positive territory as China tries to catch up on its economic growth targets.
Fortescue Metals Group (ASX:FMG) was up 2.27% to lead the big boys this morning.
“There are already signs steel producers are preparing for a rebound in demand,” ANZ Research’s Felicity Emmett said in a note.
“In the steel making hub of Tangshan, blast furnace usage is rising. Utilisation rates are on course for a third monthly increase with operations holding steady.”
The materials index enjoyed a 0.41% gain against the backdrop of a broader 0.31% fall across the ASX 200.
Energy stocks were also up 0.35% after coal prices rose overnight to around US$400/t on the back of energy shortages amid a heatwave in India.