Keynote presentation given at the International Mining and Resource Conference (IMARC), Sydney, November 2022
YouTube recording of the talk [17 Minutes]:
This presentation gives a high-level assessment of the sector’s performance and some of the challenges facing junior explorers in Australia. It follows-on from a similar analysis of the Canadian Junior Sector in July 2022.
The key findings of the current presentation are:
- After adjusting for inflation, Australia’s exploration spend in 2022 ( of A$4009 million) is getting close to that achieved back in 2012 (A$4571 million) … which was an all-time high.
- Junior companies are forecast to spend around A$1720 million in 2022.
- Over the last couple of decades Junior company’s share of the total exploration spend varied from 40 to 50% – moving in synch with the business cycle. Over the period 2012-21 they accounted for 42% of total spend, with Majors making up 57%, with the remaining 1% associated with ‘Others”.
- With regard to the Junior Companies the main target of interest was (and continues to be) gold – making up 39% of the total spend in 2022. Contrary to what you read in their press releases only a small fraction of their spend is on “Critical Minerals”. Although not directly shown in the chart, I estimate that only ~10% of their spend in 2022 is directed to exploring for lithium and Rare Earths. To be fair, the “Other” commodity sector is growing in importance (doubling from 9% in 2012 to 22% in 2022) – but notwithstanding this, gold is still the main game in-town.
- In terms of discovery, most of the deposits are now being found by the Juniors. Over the period 2012-21 they accounted for 75% of all discoveries by number. However, it should be noted that most of these were small in-size, with the Majors being focused on finding the larger / more valuable deposits (which are harder to find). Even after adjusting for this, the Juniors still punched above their-weight, capturing 64% of the value created by the industry.
- In terms of the Value-to-Cost Ratio (i.e. “Bang-per-Buck”) I estimate that over the last decade the Australian exploration sector generated $1.38 of value per every Dollar spent … meaning that it created (rather than destroyed) value. The Juniors did particularly well – with $2.10 of value; the Majors not so – with only $0.58 per Dollar spent.
FIGURE 1 : Summary – Majors versus Juniors : Australia : 2012-2021
A good way to get a feel for the pulse/ robustness of the Junior sector is to look at their Quarterly Reports to the Stock Exchange. These give a breakdown of their current cash position and spending habits. Based on a survey of 360 ASX junior companies average expenditures are starting flatten out (up only 8% over the last 12 months) whereas average cash reserves have risen 14% over the same period. It looks like the companies are worried about a possible downturn and are busy raising funds to survive the inevitable “capital-drought”.
Referring back to the previous observation that only a small fraction of the exploration spend is currently going into critical minerals, maybe the undue emphasis (i.e. “hype”) is due to the fact that the critical-mineral thematic makes for a good story to raise money from the investing public. Perhaps I shouldn’t be that cynical in my old age.