THE BOURSE WHISPERER: The latest instalment in the Explorer Quarterly Cash Update series from accounting house BDO continues to paint an unpleasant landscape for the junior exploration sector.

The last few reports from the series have shown a continual decline in the cash position of many ASX-listed mining, oil and gas explorers, which is hardly unsurprising given the sector is struggling to gain any serious traction when it comes to investor support.

BDO bases its reports on the cash position of Australian-listed explorers for each quarter, based on quarterly Appendix 5B reports lodged with the ASX.

The report for the March 2015 has followed recent trends by indicating a further decline in the number of companies reporting 5Bs.

Adding to that concern is a reduction in the number of companies actually exploring, and an overall drop in average exploration expenditure.

“Good news from junior explorers is really hard to find at the moment,” BDO partner Dan Taylor said in the report.

“Almost one in five have ceased meaningful exploration for the time being, and it’s clear that until commodity prices dramatically improve and demand increases, many companies will continue preserving cash in order to survive the next two or three years.”

The report did manage to identify some positives to take away:

Four companies graduated to become producers;

16 companies managed to raise more than $10 million – although this figure is also down from last quarter, albeit by one from 17 with only three contributing from the oil & Gas sector.

Source: BDO

The not-so-positives include too many companies without the capital required to continue operating for more than twelve months.

It gets scarier, with more than 40 per cent of ASX-listed junior explorers left with net operating cash reserves to last one or two quarters at their current cash burn rate.

“As the March 2015 update reveals, there is little good news to report at the moment about the state of Australia’s junior explorers,” BDO said in its report.

“The fact that almost one in five explorers is not actively exploring, is symptomatic of the difficulty the sector is experiencing in obtaining financing.

“And that, in turn, is driven by low commodity prices and a reduction in demand.

“As a result, the market simply isn’t responding to second, third, fourth – and more – rounds of funding, which are typically required to take a project from exploration to production (or to being sold to a producer).”

Source: BDO

According to BDO there are a number of reasons to indicate why some junior explorers are able to attract funding, while an ever-increasing number of their peer group is having to either suspend exploration or make severe cost-reduction measures in order to maintain their listing space on the bourse.

The firm pointed to the number of companies looking at other sectors in order to survive current market conditions, citing Perth-based International Goldfields, which has acquired an 85 per cent stake in the South American medicinal marijuana company, Winter Garden Biosciences as an example.

This isn’t a new phenomenon, as BDO explained, over the past two years, a there has been an obvious movement of companies from the mining and gas and oil, sectors that have been the target of backdoor listings.

“Right now, the challenge for many companies is to try and ride out the next few years, until prices are once again more attractive,” BDO said.

“This means that a company with maybe $1 million in cash reserves is forced to make a decision about whether they spend this on exploration which at a minimum quarterly cost of around $600,000 won’t last long or to simply reduce expenditure to the bare minimum.

“Another strategy that some explorers are taking is to focus on their best project and divest themselves of any other projects.

“While during the resources boom there was an argument in favour of explorers spreading their capital across a number of different projects in the hope that one would work out, it’s now more important to hone in on strengths, be focused, and keep investors well informed about what the strategy being taken is and the progress being achieved.”

Website: www.bdo.com.au

THE BOURSE WHISPERER: GBM Resources (ASX: GBZ) announced the signing of a Share Acquisition Framework Agreement with Chinese state-owned enterprise Jiangxi Centre Mining Co Ltd (JCM).

JCM is a business unit of the Jiangxi Provincial Bureau of Coal Geology, a large Chinese industrial conglomerate actively engaged in mineral exploration, mineral development, engineering construction and property development in and around the Jiangxi Province and globally.

Its mineral exploration projects include the commodities of coal, coal bed methane, gas, vanadium, copper, gold, rare earths, salt and iron ore.

GBM said the deal formalises an investment by JCM in GBM for strategic investment and partnership.

Under the Framework Agreement JCM will subscribe for new shares, taking up to a 19.9 per cent shareholding.

GBM explained the Framework Agreement encompasses a funding strategy allowing the full exploration and development of the company’s projects while forming part of a broader strategic alliance to acquire additional near-term development resources projects in other key commodities.

“This proposed transaction will provide a funding boost for the Company in a very uncertain economic environment,” GBM chairman Peter Thompson said in the company’s announcement to the Australian Securities Exchange.

“A strong cash position will create the foundations to develop our portfolio of projects.

“Having a strong technical group like JCM with downstream expertise from discovery to production on board enables us to explore in other key commodities, and I am pleased to have the opportunity to partner with JCM in meeting its development objectives within the resource sector.”

Email: info@gbmr.com.au

Website: www.gbmr.com.au

THE BOURSE WHISPERER: Life as a gold producer seems to be suiting Doray Minerals (ASX: DRM) with the company announcing record monthly gold production its 100 per cent-owned Andy Well gold project, in the northern Murchison region of Western Australia.

Doray achieved production of 10,591 ounces for the month of May at Andy Well based on processing 28,600 tonnes with a head grade of 11.96 grams per tonne gold.

Doray indicated that a substantial contribution towards the production ounces came from the high-grade Wilber Lode stage 2 open pit, which despite incurring a delayed start due to an increase in its size, mining had caught up to the original schedule and the pit is now delivering a mine grade of approximately 20g/t gold.

“The Stage 2 open pit, as predicted 12 months ago, is having a positive impact on production and costs and is currently delivering above expectations,” Doray Minerals managing director Allan Kelly said in the company’s announcement to the Australian Securities Exchange.

Doray went on to say that, following completion of mining of the stage 2 open pit, open pit production will continue from the recently announced high-grade Suzie Lode open pit.

Pre-stripping of the Suzie open-pit has commenced and Doray expects the additional high-grade open pit material to have an ongoing positive impact on production and costs in the 2016 financial year.

Email: info@dorayminerals.com.au

Website: www.dorayminerals.com.au

THE BOURSE WHISPERER: Helix Resources (ASX: HLX) has signed an Earn-In Agreement with Chilean based private equity and advisory company, Fondo De Inversion Privado EPG Exploracion Minera (EPG Mining Exploration Fund).

The agreement covers the company’s over the Joshua copper-gold project, located in Chile with key terms including:

Stage 1:
EPG has the option to earn a 33.4 per cent interest in the Joshua project by undertaking a minimum of 3,500 metres of diamond drilling within one year for a minimum commitment of US$1.2 million.

Stage 2:
Upon completion of Stage 1, EPG can then elect to increase its interest to 50.1 per cent in the project by completing up to 6,500m of RC and diamond drilling within 1.5 years for a minimum commitment of US$1.8 million.

Helix explained that following the completion of the two stage program, EPG will have a 50.1 per cent interest in the project, leaving it with a 49.9 per cent interest in the project.

A Joint Venture over the project will then form to progress the project.

“Since 2013 Helix has worked to secure a partner to advance the Joshua project,” Helix Resources said in its ASX announcement.

“Despite this being a period with a lack of interest in greenfield exploration, the Joshua project continued to attract significant technical interest and has been subject to three JV offers.

“In Helix’s view, these offers did not meet the minimum criteria required to test a large copper porphyry target in its entirety and the offers were rejected.

“The company remained focused and patient until an appropriate agreement for shareholders and the project could be secured.”

Helix described the agreement with EPG as a partnership with a well-funded Chilean company that comes with a fully-funded US$3 million drilling program to test the project’s large porphyry target over a short time frame.

The company indicated that, subject to positive drill results, this work is expected to advance the project considerably and at completion of the Earn-In program, Helix anticipates retaining a healthy equity stake in a greenfield copper-gold porphyry discovery, located in a world class mining district.

Website: www.helix.net.au

THE BOURSE WHISPERER: Atlas Iron (ASX: AGO) waited until the death knock of trading last night to announce the return of prodigal managing director David Flanagan to the top job.

Ken Brinsden is to stay on the Board moving from his current managing director role to executive director and non-executive director, while the Hon. Cheryl Edwardes will become chairman.

Flanagan was Atlas’ founding Managing Director from 2004 to 2012, when he became Chairman.

The company said Flanagan’s re-appointment as MD will enable him to focus on executing the financial, corporate and administrative aspects of Atlas’ restructure, due to its recent iron ore price-related misfortunes.

“The extensive changes implemented recently have been highly successful in cutting Atlas’ costs and positioning the company for a stronger future,” Atlas Iron managing director designate David Flanagan said in the company’s announcement to the Australian Securities Exchange.

“But there is no denying that the demands and the workload over recent times have tested us.

“That will continue in many respects as we ramp up production, continue to bolster our balance sheet and take other measures to ensure that Atlas is as strong as it can possibly be.

“This means having all hands on deck to get the job done.”

Email: atlas@atalsiron.com.au

Website: www.atlasiron.com.au