When it comes to cash, Dollar Bill is all ears

Dollar Bill loves talking cash.

He loves interest rates, coupons, benevolent tax jurisdictions, juicy small caps and all things money.

So recently, it was a delight to sit down and pore over the latest BDO Australia Explorer Quarterly Cash Update. For Dollar Bill, the report presented as a natural pairing with a fruity Chateau Latour and led to a wonderfully delicious and contemplative evening on the chaise lounge by the fire.

“Huzzah” to the report’s author Sherif Andrawes and his team at BDO Australia.

The Explorer Cash Update is a look into all pre-revenue stocks that sit within the resources sector listed on the ASX and the financial climate within which they operate. And the latest report produced several interesting takeaways.

Firstly, the fact there were fewer pre-revenue ASX-listed resource companies last quarter than the previous was a standout. A number of commentators – indeed the BDO report itself – suggested consolidation was behind the decline, with the increasing cost of capital leading many exploration companies to seek partnerships with other companies, whether via merger or farm-out for project funding, as opposed to a solo funding path via what have been increasingly austere capital markets.

But, wanting to look past explanations and instead for opportunities, Dollar Bill sensed an underlying theme of recovery within the report. One particular finding which caught the eye was that there has recently been “an alleviation of previously constrained financial markets...” – or put another way, money is becoming easier to access.

So, while pre-revenue resource companies may have been seeking alternative funding routes for project development given the harsh equity conditions, the latest report implies those difficult conditions could be easing and retail, in addition to institutional investment, looks to be making a comeback.

To be clear, the vast majority of pre-revenue listed stocks sit within the resources sector, or more accurately, within the minerals exploration sector. However, there is also a healthy scattering of med-techs and bio-techs all seeking to find the next cure for what ails you.

Additionally, there is a strong cohort of IT firms looking to take the next quantum leap forward – although these sectors sit outside the scope of the BDO report.

The meat of the report points to the $2.84 billion in financing cash that flowed into ASX-listed explorers in the most recent quarter, representing the fourth-highest quarterly inflow since the report was first published a decade ago. Also, the proportion of companies raising more than $1 million grew by 8.3 per cent, while smaller-scale fund raises became less prominent.

The BDO report indicates a gentle loosening of those previously-constricted financial markets, which has been helpfully assisted by easing global macroeconomic conditions.

There were also 53 companies that raised more than $10 million in the past quarter. They included 12 gold explorers, nine lithium, four copper, three graphite, rare earths, oil and gas and copper-gold companies. The number of companies was up noticeably from the 34 in the previous quarter.

Then, even more promisingly, there is the exploration expenditure that increased by 10 per cent to $914 million across all pre-revenue resource companies listed on the ASX in the past quarter. This fillip marks the turning point of a declining trend that has existed since the September quarter one year ago.

While highlighting the decline of finance inflows going back a couple of years, BDO also noted: “The June 2023 quarter showed a marginal reversal of these medium-term trends with the proportion of companies with net financing inflows greater than $1 million increasing from 19 per cent to 25 per cent during the June 2023 quarter.”

BDO Australia also suggested these inflows are likely to lead to an increase in exploration expenditure.

For Dollar Bill, this report sketches the outline of a promising picture for small cap pre-revenue resource stocks going forward with an easing of capital constraints leading to increased exploration spending. Furthermore, there also appears to be a more willing investor public, which may prove to be in the vanguard of a return to more salubrious times ahead, marked by the unlocking of cash destined for the small-capped exploration market.

That makes Dollar Bill feel all warm and fuzzy … just like that Chateau Latour.

Dollar Bill (sometimes known as Bill McConnell) is an Associate Director at Bulls N’ Bears and a former derivatives trader. He is also a former financial journalist and a raconteur of note. This column is for informational and entertainment purposes only and nothing contained within it constitutes financial advice – in fact Dollar Bill specifically recommends that you seek advice from someone other than him….