Article by Peter Ker, courtesy of The Australian Financial Review.
Spending on mineral exploration has slumped to the lowest level in three years as the most represented sector on the ASX goes into cash preservation mode and the scourge of inflation means fewer metres are drilled for every dollar spent.
Pre-revenue ASX-listed explorers spent a total of $794.5 million on drilling in the September quarter, down 4 per cent on the June quarter, and 19 per cent year-on-year. It is 26 per cent lower than the same period in 2022.
Data compiled by advisory firm BDO suggests spending is at the lowest since the pandemic year of 2020, when closed borders limited the ability to travel to exploration sites.
While inflows to the sector remained relatively strong at $2 billion in the three months to September, BDO head of global natural resources Sherif Andrawes said the data showed explorers were starting to consolidate or streamline their operations.
“Explorers remain cautious, balancing exploration activities with cash preservation strategies amid sustained elevated costs and lingering inflationary pressures,” he said in a note to clients.
The BDO data is broadly consistent with Australian Bureau of Statistics data, which includes revenue generating miners like BHP and Rio Tinto, and also points to a slowdown in mineral exploration spending.
The ABS found that $966.4 million of drilling was conducted on Australian soil in the September quarter; the first time in two and a half years that quarterly spending was below $1 billion.
Inflationary pressures in the sector over the past five years have ensured that each dollar spent on exploration now delivers less value for explorers; the ABS found the number of metres drilled on Australian soil the past six months was the lowest since the period between October 2017 and March 2018.
Countering that trend are modern technologies like artificial intelligence and data analysis, which are being adopted by miners to make exploration more efficient, and could mean a decline in exploration spending doesn’t necessarily lead to fewer discoveries.
Adelaide company Fleet Space will this week reveal it has raised a further $150 million in funding to develop its Exosphere product, which combines satellite technology, data processing and algorithmic analysis to steer explorers to the right spot.
The technology is being used by companies like Rio Tinto and Barrick Gold to assist exploration efforts. Fleet Space’s revenue rose to $24.7 million in the year to June 30, 2024, from $8.9 million in 2023.
The $150 million raising was led by a division of the Ontario Teachers pension fund, with local funds such as Blackbird Ventures and Hostplus also participating. It follows a $50 million raising in May 2023.
“The discovery of critical minerals must exponentially increase if we are to electrify our society by 2050 and breakthroughs, like ExoSphere, are needed to make it happen,” said Blackbird partner Niki Scevak.
Former Woolworths chief executive Brad Banducci is a small shareholder in Fleet Space.
BDO found there were 767 pre-revenue explorers on the ASX at September 30, comprising 36 per cent of all listed entities on the local bourse. Four years ago, there were fewer than 650.
Mining’s dominance of the ASX is even greater once revenue-generating miners are included.
While spending on exploration has declined, BDO found head office costs are yet to decline as rapidly. Administration costs across the pre-revenue exploration sector rose to $330 million in the September quarter, and have only been higher in four of the past 26 quarterly periods.
Mr Andrawes said head office costs were often seasonal, with costs higher in the latter months of the calendar year.