Surging commodities prices are easing fundraising for Australia-listed exploration companies, helping the sector boost spending to record levels while still amassing unprecedented cash piles.
ASX-listed exploration companies spent a total of A$1.02 billion in the second quarter of 2021, a 39% jump from the year-ago period and a 19% increase from the first quarter, while cash balances averaged A$10.9 million. Both figures are the highest they have been since S&P Global Market Intelligence started tracking data from quarterly Appendix 5B filings in 2013.
The ASX introduced Appendix 5Bs in 1996 as a reporting requirement for exploring entities, detailing how their activities have been financed and the effect on their cash position.
Quarterly cash inflows have been steadily increasing since last year, helping explorers pour money into projects focused on gold, "future-facing" commodities such as copper and nickel, and even once-shunned uranium.
Demand for these commodities is outstripping supply, independent analyst Peter Strachan, a 30-year industry veteran, said. This, combined with historically low interest rates and a commodities boom fueled by global coronavirus stimulus measures and the end of pandemic lockdowns, is also attracting investors to metals and mining.
Rising metals prices "have stimulated equity market support for explorers," Mark Ferguson, metals and mining research director at Market Intelligence, said in an interview.
Exploration and evaluation spending during the second quarter came in at A$203.8 million, the highest since the December quarter of 2019. Production and administration spending were at their highest since 2013 at A$417.2 million and A$268.3 million, respectively.
In March, Market Intelligence's World Exploration Trends report predicted that strong liquidity would lift Australian explorers in 2021 and offset pandemic-induced losses from the previous year, and accounting and advisory firm BDO Australia can now see this panning out.
Even with the higher spending, 83% of the 678 explorers that filed an Appendix 5B in the June quarter reported cash balances of A$1 million or more, and 81% have enough cash to sustain their operations for the next two quarters, according to BDO's Explorer Quarterly Cash Update of mining, oil and gas companies, released in September.
Easy cash
Exploration and IPO successes have also spurred investor interest in the commodities sector. Shares of Chalice Mining Ltd., which listed in 2006, have surged by as much as 2,300% since the high-grade nickel-copper-palladium discovery at its Julimar project in Western Australia in March 2020.
"In the past 18 months, companies have been able to raise cash pretty easily" because of current market conditions, Strachan said.
Even the ongoing skilled labor shortage amid international and domestic border closures "has not put people off investing" in explorers, according to BDO Head of Global Natural Resources Sherif Andrawes.
Of the 60 companies that raised A$10 million or more in the second quarter, 16 were gold-focused, according to BDO's report. This was expected given the positive movement in gold's price during the period.
Five uranium companies were also able to raise over A$10 million — a "surprise," Andrawes said in an interview, marking "unusually high" amounts raised by explorers.
Uranium, a nuclear power feedstock, is currently enjoying an improving price environment as the build-out of nuclear power shifts to Asian jurisdictions amid global decarbonization drives.
Copper exploration budgets, meanwhile, are up 64% year over year in Australia as of September, according to Market Intelligence, as prices for the red metal remain elevated.
"The financial health of the exploration sector continues to grow from strength to strength, especially now that healthy cash positions have translated to money being invested in the ground," according to the BDO report.