Waning commodity prices and rising costs trigger ‘concerns’ about financial health of listed explorers

Low investor appetite and deflated commodity prices have dragged down exploration capital raisings to their lowest since the pandemic. Explorers’ spending, bank balances and investor inflows were all down for the September quarter, triggering a warning from accounting firm BDO that the financial health of listed juniors was “at a crossroads”. Market volatility, funding challenges, regulatory pressures, and shifting investor focus were the main reasons for the downturn within the sector, according to BDO’s Sherif Andrawes. “I’m always trying to get a positive slant on these things, but I wouldn’t surprise me if the next quarter is also negative,” he said. “Until we see more certainty around things like interest rates, things like what’s happening perhaps with the new administration in the US . . .There’s this level of uncertainty that’s probably causing the market to stagnate a little bit.” With the sector facing tough times, he indicated hints of industry consolidation could be “around the corner”, as companies look to battle tough times by considering mergers. “Larger players, bolstered by strong cash holdings, are expected to seize undervalued opportunities to expand their resource portfolios,” BDO’s report said. The amount of companies hitting up investors for cash to get the drill bit spinning was at its lowest in four years at 28, down from 47 in the previous quarter. The sudden drop has raised concerns about the sector’s ability to secure necessary funding, according to BDO. Total investment towards explorers fell 31 per cent to $2 billion in the September 2024 quarter, continuing a steady decline since the exploration investor boom of between mid-2021 and early 2022. Capital raisings are a crucial measure of investor interest in a sector and are important to explorers because they have few other ways to make cash until they become a miner. “It remains uncertain whether investor interest in equity markets has bottomed out or if further declines are on the horizon,” BDO’s report said. With investors seemingly wary about investing in minerals, many explorers looked to debt financing instead. “This change may reflect tighter market conditions, investor caution or a focus on alternative funding sources such as debt or partnerships, diverging from the trends observed in prior quarters.” Exploration expenditure fell 4 per cent to $795 million, as operating cash outflows grew 11 per cent, running down cash balances by 7 per cent overall across the industry. Just over half of listed explorers had more than $2m in the bank. Gold held its place as the leading commodity in the quarter, pulling in $403m amid record prices. Amid a prolonged time in the doldrums lithium managed to raise $383.7m, however that was almost entirely due to Liontown Resources’ convertible notes deal with LG Energy Solution in July. Uranium was the third most popular commodity, and has stayed in the top three in terms of drawing investor cash since December 2023. As for new entrants to the Australian Securities Exchange, BDO isn’t expecting a recovery in exploration initial public offerings until at least mid-2025. The firm said the lack of new listings mirrored reduced risk appetite among investors.