With exploration spending at its lowest point in almost two years, advisory firm BDO believes this could set up exploration companies as prime takeover targets.
BDO found exploration spending from ASX-listed companies declined 17 per cent from $993 million in the December quarter of 2022 to $827 million in the March quarter of 2023. This is the lowest figure since the June quarter of 2021, where companies spent $666 million on exploration.
This reduction in exploration expenditure coincided with a decrease in high-value capital raises, where 33 per cent less ASX-listed mining and exploration companies raised $10 million or more in the March quarter of 2023 compared with the quarter before that.
“This quarter shows a distinct decline in the ability of our explorers to secure funding, which we attribute to the current market conditions being felt by most sectors right now,” BDO global head of natural resources Sherif Andrawes told The Australian Financial Review.
“It can be a trigger for M&A activity when there’s less money around for them. If there is a project that needs funding, when you can’t raise money and need to explore, it makes them a target.”
BDO said while the current exploration landscape could lend to greater M&A activity in the future, there has already been an M&A boost in 2023 amid greater economic uncertainty.
“Prior to this quarter, we witnessed a slowdown in consolidation activity among explorers and attributed this to the sector being so cashed up that individual companies were well placed to undertake operations on their own,” the firm said in its quarterly explorer report.
“With financial markets now volatile and the same ease of access to funds questionable, the trend of consolidation is growing in prevalence as larger players that are well capitalised can realise better value on prospective neighbouring tenements through acquisition.”
Ramelius Resources is one ASX-250 company to have recently launched a takeover bid for an explorer, with Breaker Resources – owner of the promising Lake Roe project – the target.
As of May 22, Ramelius had acquired almost 94 per cent of Breaker shares which was enough to deem the acquisition successful.
Mineral Resources (MinRes) also recently completed its acquisition of Norwest Energy, which had previously been a joint venture partner at the Lockyer gas project in WA’s Perth Basin.
Lockyer is seen as a future source of inexpensive gas to power downstream processing in the resources-rich state.
While exploration expenditure was down 17 per cent in the March quarter of 2023, this is still well above historical levels. Between the June quarter of 2014 and the March quarter of 2021, exploration spend never rose above $600 million.
But the landscape is still ripe for M&A, especially considering the availability of proven resources is dwindling.
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