Momentum building among juniors

BDO’s Explorer Quarterly Cash Update for June has revealed a jump in financing inflows and exploration expenditure.
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Financing inflows for the June quarter jumped by 58% to A$2.14 billion, based on Appendix 5B reports lodged by explorers.

It represents the highest total amount raised during a quarter in over two years.

The proportion of exploration companies with net financing inflows increased from 46% in March to 52% for June, and the number of companies with nil financing cashflows dropped to 35% from 39%.

Exploration expenditure increased by 15%, from $366 million for the March quarter to $420 million for the June quarter.

"This represents the second highest spend on exploration during a single quarter since March 2015," the report said.

"The Australian Bureau of Statistics also reported that metres drilled by exploration companies increased by more than 44% for the June 2018 quarter."

Median exploration expenditure rose to $250,000 for the quarter, the highest level in the five-year history of BDO's report.

BDO expects the trend to continue as juniors take advantage of the government's Junior Minerals Exploration Incentive.

Net investing cash outflows increased by 44% from $411 million in the March quarter to $592 million for the June quarter, with the proportion of companies with investment spend during the quarter reaching 45%, the highest in the report's history.

"The increase in investing activity demonstrates a growing confidence amongst explorers in their ability to realise attractive return on investment in the sector," BDO said.

The number of ASX listed exploration companies to lodge Appendix 5Bs increased for the second consecutive quarter, from 702 to 705, with seven new listings offsetting delistings, suspensions and administrations.

Total net operating cash outflows dropped by 7%, but the median increased by 15% to $570,000, the equal highest in more than four years.

Based on current operating expenditure, the proportion of companies that will burn through cash reserves in one year or less, increased from 19% in the March quarter to 21% in the June quarter.

The number of companies that will burn through their cash reserves in 1-2 years increased from 53% to 54%, while the number for more than two years declined from 22% to 21%.

"The general plateau in the proportion of companies that will burn through their cash reserves, based on current operating expenditure, supports the view that explorers are optimistic about their ability to raise future funds," BDO said.

"Consequently, exploration companies appear to be less concerned about cash preservation and are more comfortable committing funds to both operational and administrative activity."

Administration spend had been declining over the past 18 months, but rose by 12% in the June quarter to $229 million.

Average cash balances increased slightly to $6.38 million, while the percentage of companies with less than $1 million falling slightly to 31%.

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