Optimistic juniors emerging from the bottom

THE battered junior mining space could begin to recover after a tough 2014 financial year, according to Grant Thornton.

Kristie Batten

The 2014 Grant Thornton JUMEX Report found that two thirds of Australian junior mining and exploration companies were experiencing improved investor sentiment or expected to see an improvement in the 2015 financial year.

And 72% of respondents expected an increase in commodity prices over the next year, up from 56% last year.

It comes after 79% of companies that raised funds in FY14 experienced at least moderate challenges, up from 66% in the 2013 financial year.

Grant Thornton Australia Energy & Resources partner Holly Stiles said capital was returning to the sector, but was filtering in selectively.

“Competition for investors’ attention will be intense, with 74% anticipating the need to raise capital in FY15,” she said.

That was down from 77% in FY14.

Of companies expecting to raise funds, 40% expect to do it at a discount, down from 51%.

“Junior miners with advanced projects are best placed and should get themselves prepared to capitalise on the uptick, as investors show signs of increased interest in the sector,” Stiles said.

Only 68% of juniors have an exploration program planned for FY15, echoing the results of BDO’s Explorer Quarterly Cash Update released earlier this month which showed that explorer inactivity was on the rise due to lack of funds.

Exploration expenditure fell to $A2.1 billion in FY14, down from the peak of $4 billion in the 2012 financial year, while total metres drilled fell 24% in FY14.

Over half of companies surveyed were considering a joint venture, 42% were considering an acquisition and 16% were looking at a takeover or corporate acquisition.

Only 19% were not expecting a major corporate transaction in the next 12 months, indicating a rise in M&A activity.

“As valuations continued to fall over recent years, a significant increase in M&A was widely expected and yet didn’t transpire,” Stiles said.

“However, with many believing that the bottom of the cycle has passed, those companies with cash appear to be more serious about doing a deal.

“The third highest priority for funds from the next capital raising is now acquisitions and 28% of companies have a key corporate strategy of taking advantage of current valuations to secure the acquisition of attractive projects or companies.”

Of companies surveyed, 44% still plan on minimising costs in FY15, which was the same percentage that expected market conditions to remain difficult.

And 65% expect to keep employee and contractor numbers broadly unchanged, up from 61% last year, though only 25% plan to increase numbers.

Grant Thornton warned that capital would still be limited for those that have grassroots projects.

“Companies with greenfield projects will continue to face protracted tight conditions,” Stiles said.

“After several years of limited equity funding, companies with cash balances that have dwindled to levels severely limiting options will need to consider the more difficult decisions around shedding projects or opening themselves to transactions outside the resource sector.

“For companies with more advanced projects and those that have been creative in their approach, building value with minimal expenditure, we’re seeing signs of improvement.

“It looks as though we’re moving towards market conditions that reward project success through stronger share prices, as opposed to investors pouncing on any success as an opportunity to sell out.”

The fifth version of the survey interviewed 100 mining and exploration companies of the 755 with a market capitalisation of less than $500 million.

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