Latest research from BDO shows there has been a broad recovery in the resources sector, highlighted by the resurgence in the number of initial public offerings (IPOs) and another expected increase in cash outflows for the June 2017 quarter.
The BDO Explorer Quarterly Cash Update explores the cash position of Australian-listed explorers based on quarterly Appendix 5B reports lodged with the Australian Securities Exchange (ASX).
BDO natural resources national leader Sherif Andrawes said the welcome recovery that was reported in the December 2016 quarter had continued.
“Cash flows increased once again, as did the number of resource company IPOs. We anticipate this revival of increased exploration activity to continue into the next quarter,” Andrawes said.
Battery-related commodities led the way on the back of growing demand for electric cars, accounting for 50 per cent of the funds raised by exploration companies via IPOs.
“Of particular significance is the increase in the number of companies lodging Appendix 5Bs for the first time since September 2013,” Andrawes said.
“We will wait to see what impact the scrapping of the exploration development incentive (EDI), announced as part of the 2017/18 Federal Budget with a new tax scheme to take its place, will have on junior explorers.”
“We would expect that as the M&A phase continues and with a return of equity to the broader commodity markets, exploration will again be a strategic priority for a number of companies and that the EDI may stimulate this activity earlier in the process.”
The latest BDO report based the resources sector recovery on a 13 per cent increase in exploration expenditure from $267 million for the March 2016 quarter to $305 million for the March 2017 quarter.
However, exploration expenditure fell from $354 million in the December 2016 quarter. Exploration expenditure commonly falls between the December and March quarters, BDO added.
The report also revealed that the proportion of companies with two quarters or less of cash reserves, based on current operating expenses, decreased from 38 per cent for the December 2016 quarter to 31 per cent for the March 2017 quarter.
During the quarter, there were 13 companies that had net investing outflows in excess of $5 million, dominated by oil and gas and lithium explorers. For the December 2016 quarter there were 10 companies, led by gold and lithium explorers.
“This reaffirms the increased activity in lithium and the markets shifting preferences away from bulk commodities to battery-related and mining technology stocks,” BDO reported.