Finance forum
Junior explorers on the rise
The period of uncertainty and caution exhibited over the past few years, which saw many of the
ASX-listed junior exploration companies take their foot off the accelerator, may have come to an end,
writes Sherif Andrawes.
T
he positive sentiment witnessed at the recent Africa Down
Under 2018 conference, saw delegate numbers up on recent
years and conversations now focused on finding suitable
projects to buy or fund. There has been a tangible increase in the
ability of ASX-listed explorers to raise funds, explore, and invest. the June 2018 quarter. Furthermore, the number of ASX-listed
exploration companies continues to exhibit an upward trend,
increasing for the second-consecutive quarter, from 702 to 705.
Given the steady fall in the number of ASX-listed explorers from
2012, the recent uplift is very encouraging.
For several years, BDO has analysed the quarterly reports of
mining as well as oil and gas exploration companies listed on the
ASX. BDO’s latest edition of the Explorer Quarterly Cash Update
(focusing on the quarter ended June 2018), on the cash position
of ASX-listed explorers, shows that across the sector, investing
cash flows increased by 44%, from USD411-million for the March
2018 quarter to USD592-million. The increasing trend in capital
expenditure observed over recent quarters demonstrates that
these companies are actively pursuing investment opportunities
to strengthen or expand their scale of operations, in addition to
exploration activities. There were 30 exploration companies that raised in excess of
USD10-million during the June 2018 quarter. Of these, there were
four gold, four lithium, and four oil and gas companies. Of these,
several have interests in Africa, including West African Resources
(gold in Burkina Faso), which raised USD36-million; Battery
Minerals (graphite in Mozambique), which raised USD20-million;
and Lukapa Diamond Company (diamonds in Angola), which
raised USD17-million.
The Australian Bureau of Statistics also reported that the metres
drilled by exploration companies increased by more than 44% for
Sherif Andrawes is the global and national practice leader:
Natural Resources at BDO Australia.
The change of tide for ASX junior explorers is further supported
by the total exploration expenditure for the June 2018 quarter
reaching the highest level since June 2016 quarter. Exploration
expenditure increased by 15%, from USD366-million for the
March 2018 quarter to USD420-million for the June 2018 quarter.
This represents the second-highest spend on exploration during a
single quarter since March 2015.
Africa has always held its reputation as the land of opportunity;
however, the decline in commodity prices following the mining
downturn forced Australian companies to focus on ‘low risk’
assets closer to home. The companies that made it through the
tougher times were able to do so through reducing administration
costs. The continuation of the improved performance in the past
few quarters, together with the availability of funds and increased
costs in Australia, is leading to an increased appetite for ASX
explorers to go back into Africa. b
Junior exploration companies are expected to increase their activity in 2019.
www.africanmining.co.za
MARCH - APRIL 2019 AFRICAN MINING
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