Commodity price rise joy short lived as statistics enter the equation
THE CONFERENCE CALLER: Patersons Securities resource analyst Jason Chesters was given an unexpected, and rare opportunity when he was asked to provide a market update on the opening day of the RIU Explorers Conference in Fremantle.
Fortunately for Chesters, and for all the explorers sitting in the packed auditorium, for the first time in some months all commodities, including recent pariahs nickel and zinc, were enjoying a rise in price.
“There has been some positives out there in the market place of late, worth highlighting,” Chester said.
These included the recent run of iron ore, which has moved from recent lows of sitting in the high US$30s mark to be just over US$51 per tonne the night befor the conference opened.
Nickel had enjoyed a buoyant run putting on 10 percent just in the week leading up to the event, as had manganese, while zinc was basking in a four month-high price.
Market darling gold had jumped again overnight to be sitting pretty at US$1222 per ounce.
The latest price highlights are all well and good, and provided much enthusiasm for the convened mass of managing directors, however the sober truth of recent times cut through when Chesters decided to take a look at the filing of 5Bs submissions for cash positions of companies.
The statistics were sobering, demonstrating around 58 per cent of resource companies that filed 5Bs for the December quarter 2015 having cash balances of less than $1 million.
Around 28.5 per cent have balances hitting between $1 million to $5 million, six per cent with between $5 million to $10 million and the remaining 7.5 per cent lucky enough to be sitting on cash balances greater than $10 million.
Of 286 resource companies listed on the ASX 186 have cash balances of less than $500,000.
120 had a cash balance less than $200,000, and 66 had less than $100,000.
“Cash balances that low, do put pressure on what it is you (exploration companies) are going to be doing for the next year,” Chesters declared.
“Assuming corporate overheads take up around half a million dollars, that doesn’t leave much for exploration.
“So companies are going to be looking to the market, and other means, to find funding to further the exploration of their projects.”
It would seem, however, the money is being spent where it should be – on the ground exploring.
Chesters explained that mineral exploration expenditure for the 2015 September quarter rose 11.6 per cent on a seasonally adjusted basis to $369.5 million.
Of particular note was that the largest contributor to that rise was Western Australia – up 12.8 per cent, or $24.8 million.
That being the case it also seems the appetite for greenfield exploration has diminished somewhat whit was exploration on existing deposits driving that growth, not exploration on new deposits with gold emerging as sitting in the driver’s seat of the exploration bus.