RESEARCH from BDO shows there has been a broad recovery in the resources sector, highlighted by a 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 is based on the cash position of Australian-listed explorers based on quarterly Appendix 5B reports lodged with the ASX.
BDO Natural Resources national leader Sherif Andrawes said, “The welcome recovery we saw in the December 2016 quarter has continued. Cash flows increased once again, as did the number of resource company IPOs. We anticipate this revival of increased exploration activity to continue.”
Battery-related commodities led the way on the back of growing demand for electric cars, accounting for 50% 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.
“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,” Sherif Andrawes said.
The quarterly update revealed that total exploration expenditure fell from $354 million for the December 2016 quarter to $305 million for the March 2017 quarter. This was despite an increase in the number of companies lodging Appendix 5Bs, with average exploration expenditure falling from $0.51 million to $0.44 million.
It is not uncommon for exploration expenditure to decrease from the December to the March quarter, however BDO notes that the decrease from Q4 2016 to Q1 2017 is much smaller than previous years.
BDO says the increase of 13% over the March 2016 quarter total of $267 million indicates that there has been a broad recovery in the resources section.
During the quarter, there were 19 companies that reported exploration expenditure in excess of $2.5 million, dominated by gold, oil and gas and potash explorers.