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Cash floods into junior space

estern Australia’s resistance to the
Wpandemic and a strong gold price Cash magnets: Largest junior capital raisings in June quarter
helped boost exploration company coffers
during the June quarter.
While the rest of the global economy ex- Company Commodity Amount (source)
perienced a sharp decline on the back of Red 5 Ltd Gold $125 million (equity)
the COVID-19 lockdown, the June quarter
saw Australian explorers enjoy their best Emerald Resources NL Gold $99 million (debt + equity)
three-month period in a decade with a
60% increase in financing cash inflows, Dacian Gold Ltd Gold $98 million (equity)
according to business advisory firm BDO. Kalium Lakes Ltd Potash $88.5 million (equity + debt)
ASX-listed juniors brought in $1.34 bil-
lion in the June period, exceeding the five- New Century Resources Ltd Zinc $50 million (equity)
year average of $1.22 billion and offsetting
the four-year low of $834 million in the
March 2020 quarter. “We are getting a lot of interest from ex- Andrawes pointed to examples in the
Sherif Andrawes, BDO’s Global Head plorers coming home to Australia,” Pearce September quarter such as Bellevue Gold
of Natural Resources, said there was a said. “They are looking to pick up projects Ltd ($135 million), Salt Lake Potash Ltd
“tsunami of money” coming to Australian in a place they know they can operate in.” ($98 million), Gascoyne Resources Ltd
resources companies, thanks to several WA has been relatively untouched by ($85 million plus $40 million debt) and Ga-
coronavirus-related factors. the global pandemic with low levels of in- lena Mining Ltd ($12 million plus $US110
“There are a number of reasons for the fections and next-to-no community trans- million debt) as evidence of the continued
change,” Andrawes told Paydirt. “Obvi- mission. The WA Government’s decision strength of the market.
ously, commodity prices are important, to declare mining and exploration an “es- For Pearce and AMEC, the focus will
particularly with gold through the roof but sential industry” also meant explorers be on ensuring government and regula-
also in times of uncertainty people go with could carry on without the disruption ex- tors understand the importance of keeping
what they know which has led to a lot of perienced by peers in other jurisdictions. pace with industry.
backing for WA-focused companies.” The main concern now would appear to “The road ahead actually looks good,
Andrawes said institutional investors be finding operators to carry out work pro- there is a window of opportunity, but we
were lining up looking for investment op- grammes with exploration services in high need to ensure the regulatory environment
portunities in the WA gold space with capi- demand. is there to allow the industry to develop,”
tal raisings closing quickly despite the av- “All the exploration companies are Pearce said.
erage size of raisings increasing. cashed up but the question is how they Both Pearce and Andrawes are mindful
“They haven’t just gone for $4-5 million, are going to spend the money, I’m not sure of the potential impact recent Foreign In-
they are raising big chunks,” he said. the capacity is there to spend it quickly vestment Review Board (FIRB) decisions
BDO’s analysis of the quarter showed because of the limited ability to do work,” could have on the sector.
28 companies raised funds of $10 million Andrawes said. “There are concerns over the FIRB
or more – up from 12 companies in the “The oil and gas exploration equipment changes,” Pearce said. “You have to rec-
March 2020 quarter – with gold compa- is parked up but in hard rock it is very busy. ognise Australia was built on foreign in-
nies leading the field. Second-hand drilling equipment is actually vestment, particularly the big resource
Andrawes said the trend would eventu- worth more than new orders at the mo- projects whether that be from Japan and
ally lead to a revival of resources IPOs in ment because they want access now.” Korea in the 60s and 70s or China more
the latter part of 2020 and into 2021. With hard borders still in place, explor- recently. We should recognise the net ben-
“We are seeing IPOs re-emerge again,” ers and service providers are beginning to efit to Australia of this investment. If you
he said. “Our book of IPOs is bulging with fear a squeeze in labour. turn it away where are the investors going
a dozen exploration and related compa- “The drillers are very busy so will see to come from? The options aren’t as wide
nies who have cash.” employment problems in the next few as some people believe.”
Again, the focus is likely to be on gold months,” Andrawes said. Andrawes is conscious of the Austral-
and Australian-focused companies. Despite the tightening of the services ian resources sector getting caught up in
“Three of the IPOs we are working on market, Andrawes expected junior fund- wider geopolitical narratives.
are for Canadian companies coming to raising to continue through the September “The whole Australia-China, US-China
Australia. They came out of our roadshow quarter and even beyond. relations situation is a concern,” he said.
with the ASX in Canada last year. There is “BDO expects that the current positive “Where it goes with iron ore will depend
a recognition from overseas-focused com- trend in financing for junior explorers will on a few things, including the future of the
panies which are starting to focus on WA persist and even grow in the next quarter,” Simandou project in Guinea but China
projects.” he said. “This June quarter, we observed certainly still needs Australian iron ore. I
Association of Mining & Explora- 175 companies reporting less than two esti- believe cultural diplomacy – for instance,
tion Companies chief executive Warren mated quarters of funding available, of which the relationships Football West is forming
Pearce has also noticed a trend for over- 149 (85%) indicated that they have already in China – become very important in these
seas-focused and domiciled companies taken or propose to take steps to raise fur- circumstances.”
hunting for Australian assets. ther cash to fund ongoing operations.”

Page 12 OCTOBeR 2020 aUSTRaLIa’S PaYDIRT