BDO’s report on the cash position of Australian-listed explorers for the June 2018 quarter (based on quarterly Appendix 5B reports lodged with the ASX) indicates that the natural resources sector in Australia is continuing to build momentum, with both investors and exploration companies exhibiting a bullish outlook, as exploration companies increasing spending across the board.
Exploration expenditure for the June 2018 quarter increased by 15% to $420 million. This represents the second highest spend on exploration during a single quarter since March 2015. The Australian Bureau of Statistics also reported that metres drilled by exploration companies increased by more than 44% for the June 2018 quarter.
Net investing cash out flows increased by 44% from $411 million for the March 2018 quarter to $592 million for the June quarter. The increase in investing activity demonstrates a growing confidence among explorers in their ability to realise attractive return on investment in the sector.
Furthermore, the number of ASX listed exploration companies to lodge Appendix 5Bs continues to exhibit an upward trend, increasing for the second consecutive quarter, from 702 to 705.
BDO’s Global Leader of Natural Resources, Sherif Andrawes said “The June 2018 quarter has seen a tangible increase in the ability of exploration companies to do what they do best: explore. Not only have we seen companies raise more funds, we have also seen them spend more on exploration and investment than we have for some time. This is a pleasing continuation of the trend we’ve observed in our last few reports.”
The positive industry sentiment displayed during the June 2018 quarter was not isolated to exploration companies, with a number of large producing companies including BHP, Fortescue and Rio Tinto, committing significant funds to development and expansion strategies.
Andrawes observed “Australian explorers have managed costs and can take advantage of improved commodity prices, especially in Australian Dollar terms, which is driving confidence.”
“We expect to see a continued increase in exploration expenditure over the coming quarters as junior explorers begin to take advantage of the Junior Minerals Exploration Incentive (‘JMEI’). 46 companies have secured funds through the JMEI in its second round, with the funds becoming available in the 2019 financial year.”
“Over the past few years, those exploration companies who have survived, have largely achieved this through being able to reduce administration costs. Perhaps the most telling sign that the tide is turning for exploration companies is that total exploration expenditure is at the highest level since the June 2016 quarter. Further anecdotal evidence from many clients is of an increasing wait time for drill rigs and increasing costs too,” Andrawes concluded.