The data for the quarter suggests a slowdown in activity among ASX-listed exploration companies during a period of market stabilisation.
This comes after a quarter marked by near-record exploration spending and abundant fundraisings, resulting in healthy cash balances.
Despite having to navigate lingering uncertainties in global economies and geopolitical challenges, explorers were encouraged by strong commodity prices, particularly in the uranium sector, and sustained demand for minerals vital to the global energy transition.
In the March 2024 quarter, inflation showed signs of moderation, though the near-term economic outlook remains cloudy (and recent data has countered this view).
Commodity prices continued to climb, particularly for energy commodities including coal, gas and uranium, priming the ability of these explorers to attract investor interest.
Unravelling geopolitical tensions, concerns over the Chinese property market and an anticipated lowering of interest rates in major economies in 2024 and 2025, called for gold to remain a popular safe haven asset.
Following strong fundraising activity in the December 2023 quarter, financing cash inflows experienced a 39 per cent decline to $1.62 billion in the March 2024 quarter, while the average financing inflows per company dipped by 29 per cent when compared to the two-year average.
Notably, fewer companies raised more than $1 million, while the proportion of explorers raising no funds at all increased, nearing the two year high seen this time last year.
While we acknowledge the influence of seasonality on this trend, with the March quarter often being a quiet period for capital raises, looming market uncertainty has contributed to a softening in capital markets, resulting in reduced funding availability, particularly for smaller explorers.
Meanwhile, advanced explorers and early-stage producers continued to gather investor support.
In the March 2024 quarter, 38 “Fund Finders” companies raised capital in excess of $10 million, down from 43 in the previous quarter.
Interestingly, the Fund Finders were led by seven uranium explorers, trailed by five gold, four oil and gas, and three lithium companies, with the remaining 19 companies covering 13 different commodities.
After a two-year-long battle between lithium and gold, uranium claimed first place in our Fund Finders analysis for the quarter, accounting for 27 per cent of the total $1.21 billion raised by our Fund Finders, with gold closely behind at 24 per cent. Uranium Fund Finders were led by advanced players, Deep Yellow Limited (Deep Yellow), Peninsula Energy Limited (Peninsula) and Paladin Energy Limited (Paladin).
Graphite also continued to be a leading commodity in our Fund Finders analysis which was a result of Syrah Resources Limited’s (Syrah) $77.6 million equity raise.
Amidst the current headwinds of high inflation and interest rate uncertainty, the initial public offering (IPO) market has continued to dwindle.
Despite this, two of the three IPOs in the quarter focused on commodities essential for the clean energy transition.
This indicates that although explorers are generally finding it difficult to raise capital and list, with the right project and a future facing commodity, there is still somewhat of an appetite for exploration company IPOs.
Overall, the number of ASX-listed exploration companies lodging an Appendix 5B decreased by one, with 780 companies recorded in the March 2024 quarter.
Exploration expenditure in the quarter declined by 26 per cent to $748 million, following the near record billion-dollar spend witnessed in the prior quarter.
The average exploration spend per company decreased to $0.96 million, the lowest point seen since the March 2021 quarter, with 62 per cent of explorers undertaking small scale exploration programmes in all tranches of less than $500k.
Similarly, investment spending showed a slowdown with net investing outflows declining by 29 per cent.
All signs indicate that after a quarter of ample fundraising and exploration, explorers have retreated to a cash preservation mode, likely a result of the availability of capital being less certain.
Due to ongoing inflationary pressures, explorers have demonstrated resilience by maintaining healthy cash balances.
Although the average cash balance per explorer has decreased from $10.16 million in the December 2023 quarter to $9.46 million in the current quarter, the levels still stand as relatively robust when compared historically.
