Note to explorers: Start exploring

CONFERENCE CALLER: In what was possibly the most sobering performance at the RIU Sydney Resources Round-up, BDO partner-corporate finance Dan Taylor presented the findings of the company’s latest Explorer Quarterly Cash Position report.

For some, reading the report could be as frightening as a Stephen King novel as it produced numbers showing that, compared to previous quarters we have just had the lowest number of companies providing appendix 5B reports to the ASX in the March 2015 quarter.
 
Appendix 5B reports are lodged by companies to declare their exploration activities and a downturn in the lodgement of these can really only mean one thing – that there are less exploration companies actually exploring than there has been.

The BDO report found only 793 reports lodged for the March quarter, which has dropped from, what was until now, the previous low in the December 2014 quarter of 814.

BDO put the reduction in the number of Appendix 5B lodgements down to there being just one new listing while four companies made the transition from explorer to becoming producers.

Three were the subject of backdoor listings – most probably taking advantage of the recent interest in technology stocks.

Of particular note was the fifteen companies that either delisted, were suspended or did not provide a response for non-listing;

“Typically we have three or four new listings every quarter, in March we only had one,” Taylor said.

“We had four companies that didn’t lodge [Appendix 5Bs] because they went into production, and obviously that is a positive sign and we are looking for as much of that to happen as possible.

“The concerning thing is we have 15 company’s delisting suspending or giving no reason for not lodging – that is the biggest number of companies that haven’t lodged for those reasons that we have seen in the series of eight quarters since we started producing these reports.”

According to the BDO report the number of explorers who are not conducting any exploration activity has increased to 12 per cent, which the firm noted to be the highest level since it began analysing the quarterly cash expenditure of exploration companies.

The analysis also looked at explorers who had spent less than $10,000 in the quarter on exploration expenditure, which produced a worrying trend showing one in five explorers either spent less than $10,000 or nothing at all.

Source: BDO

“The number of companies not exploring has increased,” Taylor continued.

“The percentage is increasing at the moment, just based on the fact that there is a reduction in the number of exploration companies that are lodging 5Bs – and we are getting up to around 100 companies that are doing nothing.

“In the March quarter there were, around 150 companies that effectively did no exploration by doing nothing or spending less than $10,000.”

Another worrying trend shown up by BDO’s analysis is the reduction in the number of explorers exploring.

There has been a reduction in overall spend, with only 11 per cent (86) of ASX-listed explorers spending more than $1 million on exploration in the quarter.

This number easily surpassed the previous lowest number of 122 recorded in the December 2014 quarter.

“One of the more concerning things is the number of companies that are spending less than $1 million.

“From June 2013 to the recent March quarter less than half of the companies that were spending over $1 million previously are spending less.”

BDO did acknowledge resources price uncertainty as having been a major reason for the reduction in exploration expenditure.

Other factors to blip on the radar screen included:

Only 38 per cent of explorers had positive financing cash flows;

Only 34 per cent of explorers had a net investment in capital expenditure; and

Average exploration expenditure has fallen for the fifth straight quarter to $539,000 per company.

This figure is concerning when lined up against the average expenditure BDO identified in the
June 2013 quarter of $980,000 per company.

This is the first time this figure has fallen below $600,000.

Website: www.bdo.com.au