The following article is from Edition 23 (May 2024) of The Pick Magazine, Australasia’s premier investor-focused magazine covering the resources sector. The magazine is edited by experienced resources journalist Kristie Batten. Download your copy of the magazine today.
After an incredibly shaky start to the year, sentiment is starting to improve in the junior mining and exploration space.
The dire performance of micro-cap stocks in January made it feel like it was going to be a very long year for juniors.
Lion Selection Group investment manager Hedley Widdup said juniors remained “very cheap”.
Over the two years to mid-March, he said the ASX 100 Resources index was down by around 7%, while ASX Small Resources was down 28%.
Micro-cap resources are down by a whopping 69% over the same period, while liquidity has also deteriorated.
“If you had a dollar to invest in that space two years ago, it would have bought something but its purchasing power is now three times that in terms of the stocks that you could buy,” Widdup told a recent Resources Rising Stars event.
“So that’s the opportunity.”
Time for majors to go shopping?
One cashed up group that hasn’t acted on the opportunity is the major and mid-tier miners, which remain in strong financial health.
Interestingly, the North Americans seem to have identified the bargains that can be found in the junior space and have been investing accordingly.
Late last year, Barrick Gold Corporation invested C$23.4 million in explorer Hercules Silver, while Agnico Eagle Mines paid C$23.1 million for a 12% stake in Canada Nickel.
The deals kept coming in January, with China’s Zijin Mining investing C$130 million in Solaris Resources, Eldorado Gold Corporation investing C$15 million in Amex Exploration Inc and FPX Nickel attracting a C$14.5 million investment from Japan’s Sumitomo Metal Mining Co.
In Australia, there has been very little activity.
The exceptions are Mineral Resources, which bought up a bunch of stakes in small companies around its operating lithium mines, and Fortescue, which invested in Magmatic Resources in March and farmed into its Myall project in New South Wales.
“Surely it’s time the majors get their chequebooks out,” one company managing director told The Pick Magazine.
Juniors end 2023 in strong financial position
Regardless of market sentiment, the financial health of the junior sector remained solid as of the end of December.
According to BDO, explorers raised A$2.68 billion in the December quarter, up 32% on the September 2023 quarter.
BDO said 43 companies raised A$10 million or more, accounting for 75% of the total raised.
Despite a crash in lithium prices, lithium explorers raised the largest amount, both for the December quarter and for the year, followed
by gold companies.
BDO found that 77% of explorers had a cash balance of at least A$1 million but noted average cash balances had fallen over the course of 2023 due to higher exploration spend.
“Our analysis, not only for the December 2023 quarter but also for the 2023 calendar year, illustrates that the Australian exploration sector is in good health, which will give us the best chance of meeting the future mineral demand required for the energy transition,” BDO said.
Exploration strong
Juniors spent just over A$1 billion on exploration in the December 2023 quarter, the highest spend for the year.
“Total exploration expenditure was A$1.01 billion, reaching levels among the highest recorded since 2013 and marking the highest of the 2023 calendar year,” BDO head of global natural resources Sherif Andrawes said.
“An encouraging sign for the sector more broadly was the fact that the increase in exploration expenditure was not just coming from the larger end of the market, there was also a 23% increase in those companies spending between A$100,000 and A$300,000.”
While the BDO data covers all ASX-listed mining and oil and gas companies lodging a quarterly Appendix 5B, the Australian Bureau of Statistics (ABS) records data for all mineral exploration in Australia.
The ABS found that for the December quarter, mineral exploration rose by 0.9% quarter-on-quarter to a seasonally adjusted A$1.09 billion and fell by 3.1% to A$1.1 billion in original terms.
Exploration for new deposits fell by 4.4% to A$353.8 million.
“The trends are shifting to a decline in expenditure and meters drilled, with the hardest hit being exploration for new deposits,” Association of Mining and Exploration Companies chief executive Warren Pearce said.
Metres drilled dropped by 5% to 2662.3km.
Data for the March quarter won’t be available until June.
Green shoots?
The record gold price, surge in base metals and hint of a recovery in battery metals has slowly started to trickle down to the small-cap space and appears to be gaining momentum.
According to MakCorp, 68 mining companies conducted 81 capital raisings in February, raising a total of A$1.9 billion.
However, that figure was largely skewed by Vulcan Energy Resources’ A$825 million financing.
In a positive sign, MakCorp revealed that in March, 86 companies conducted 107 capital raisings for a total of A$3.85 billion.
Again, the figure was impacted by the A$1.7 billion raised by rare earths developers Australian Strategic Materials and Arafura Rare Earths, but still represented a significant improvement on the previous month.
While new ASX listings have been few and far between so far in 2024, that also may be changing, which would represent another positive sign for the junior sector.
Excluding Metals Acquisition’s dual listing in March, only four junior explorers had listed on the ASX up until mid-April.
But an increasing number of companies, including Sun Silver, Capella Metals and Axon Graphite, are banking on now being the right time to lodge prospectuses.
S&P Global Market Intelligence recently reported a surprise slump in global drilling activity in March.
“And with a surging gold price, the biggest surprise was the 51% drop in gold projects drilled. Base metals projects drilled were down 32% and specialty metals down 17%,” Argonaut analyst Ian Christie said.
“However, there is a lag between capital inflows and drilling activity. The current gold price strength should attract capital so there is a strong chance of a recovery in drilling activity in coming months.”
Sentiment test
As with the RIU Explorers Conference in Fremantle in February, the RIU Sydney Resources Round-up on May 7-9 represents one of the largest gatherings of junior explorers in Australia and is a good test of the mood of the market.
As well as keynote presentations by Euroz Hartleys and ABC Refinery, the event will feature 92 company presentations.
Of the presenters, 28 are gold companies, reflecting its record run, while resurgent copper companies occupy 16 of the slots. Not to ignore the prominence of critical minerals, there are 13 lithium presenters, seven uranium companies, five nickel companies and four with a rare earths focus.
The event is expected to attract more than 1500 delegates.
To access further industry analysis, company profiles and high-profile investor insights, get your hands on Edition 23 of The Pick Magazine.