explorer quarterly cash update

EXPLORER QUARTERLY CASH UPDATEQuarter Ended 31 March 2021

INVESTORS STRIKE WHILE THE “ION” IS HOT! LITHIUM EXPLORERS POCKET THE BULK OF FUNDS RAISED WITH OTHER BATTERY MINERALS FOLLOWING SUIT

RESEARCH INTO THE FINANCIAL HEALTH OF AUSTRALIAN-LISTED EXPLORERS

QUARTER ENDED 31 MARCH 2021

X Financing cash inflows experienced growth for a fourth consecutive quarter, climbing 7% since the December 2020 quarter to $2.37 billion. This resulted in 80% of exploration companies reporting cash balances of $1 million or more (the highest proportion recorded since we commenced our analysis in 2013);

X With the growing importance of Environmental, Social and Corporate Governance (‘ESG’) and lower carbon emissions, we saw a surge in capital raisings by battery minerals exploration companies; and

X Strong investment and exploration activity continued into the March 2021 quarter with net investing cash outflows and exploration spending holding relatively steady since the December 2020 quarter.

BDO’s report on the financial health and cash position of Australian-listed explorers for the March quarter of 2021 (based on quarterly Appendix 5B reports lodged with the Australian Securities Exchange (‘ASX’)) provides positive signals for the exploration sector, with evidence of a definitive COVID-19 recovery seen from unprecedented levels of financing inflows, a strong cash position and improved investment and exploration spending since early 2020.

Exploration companies raised $2.37 billion in the March 2021 quarter, up 7% from the $2.21 billion in December. 48 of these companies (which we have termed ‘Fund Finders’) raised funds of $10 million or more and made up 75% of the total funds raised.

Whilst the total quantum of funds raised showed a slight increase, there is some evidence to suggest that the frequency of capital raises in the sector had slowed in the March quarter with 28% of exploration companies raising $1 million or more, down from 39% and 36% in the September and December 2020 quarters, respectively. This implies that the 7% growth was mainly attributed to several large raises within the sector. However, the lower number of capital raises could be due to the fact that the average cash position had grown by 17% to $9.70 million, with 81% of companies reporting sufficient funds to support operations for more than two quarters. This may have negated the urgent need for explorers to raise funds in the March quarter, as companies turned their focus instead toward spending in the ground and investment.

A new observation from this quarter’s Fund Finder data is the flood of funding toward battery minerals and clean energy companies. This is in line with growing ESG initiatives including global trends of rising electric vehicle (‘EV’) adoption and lower carbon emission targets. Investors have certainly appeared to tailor their preference in line with these trends and Australian battery minerals explorers have appeared to capitalise on this opportunity to raise funds for the advancement of their operations.

Investment expenditure (when adjusted for an outlier in the December quarter) appeared to hold relatively steady with an increase of 7%. This was already after an adjusted 164% increase since the September quarter of 2020, indicating that confidence to acquire new tenements and equipment had returned to the sector. Exploration expenditure followed suit with a small decrease of 6% since the December 2020 quarter, which we believe (through discussions with our clients) is a result of the availability of equipment and labour resources, particularly in relation to drilling services and assay testing. This could in turn have an inflationary effect on exploration costs in the future.

Our overarching observation for the March quarter of 2021 is that the positive financial indicators observed in the December quarter of 2020 have largely persisted. The substance behind these indicators however, particularly in relation to financing, has shown a gradual transition away from just gold, which during the COVID-19 recovery period was the preferred “safe haven” asset. Instead, funds are now flowing toward battery minerals and clean energy commodities such as lithium, graphite and copper.

2 Q3 - BDO EXPLORER QUARTERLY CASH UPDATE

FINANCING CASH FLOWS

The trend of record-breaking financing inflows continued into the March 2021 quarter with explorers pocketing a total of $2.37 billion in funds, the highest we have seen since commencing our analysis in 2013.

This not only represented a 7% increase since the December 2020 quarter, but also highlighted the stark contrast between the start of COVID-19 and the present day, with financing inflows being 184% more than what they were in the March quarter just one year ago.

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Furthermore, the proportion of companies undertaking capital raises of $1 million

or more had decreased from 39% and 36% in the September and December 2020

quarters respectively, to 28% in the current March quarter. See next page.

During the March quarter, debt and equity raises of $10 million or more represented 75% of total financing cash inflows (see Fund Finder section on pages 7-9). This implies that the uptick in financing was largely driven by several large capital raisings relating mostly to initial public offerings (‘IPOs’) or more advanced pre-development companies.

Across all companies, however, there is some evidence that financing has started to slow, with the overall frequency of capital raisings having decreased in the March 2021 quarter. Of the 658 exploration companies, 53% recorded net financing cash inflows in the March 2021 quarter, down from 59% and 63% in the prior two quarters, and 28% of exploration companies recorded nil cash flows, up from 24% in both the September and December quarters of 2020.


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NET FINANCING CASH FLOWS ($M)

However, the slowdown in the frequency of capital raises for the March 2021 quarter

does not necessarily mean a decline in the availability of financing or dampening

financial markets, especially when we consider that explorers had already managed

to raise in excess of $2 billion over the last two quarters and therefore would have

had less necessity to raise funds in the March quarter. This is further affirmed by the

sector’s strong cash position as detailed on the following page.


MARCH 2021 QUARTER CASH POSITION

The cash position of the exploration sector in the March 2021 quarter is the strongest we have seen since our first report. The charts to the left show that 80% of exploration companies reported a cash balance of over $1 million as at 31 March 2021.

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ASX EXPLORERS’ CASH BALANCE (%)

As at 31 March 2021, the average cash balance of exploration companies was $9.70 million, which is 17% higher than the $8.28 million of the previous December quarter and 41% higher than the two-year average of $6.88 million. Of the 658 companies that lodged an Appendix 5B, 81% of them reported having sufficient cash balances (including unused financing facilities) to support more than two quarters of operating expenses (based on total relevant outgoings in the current quarter).

Furthermore, 87% of the companies that reported less than two quarters of funding either expected a decline in relevant outgoings or intended to undertake a fundraise in subsequent quarters, illustrating that the outlook towards access to financing still remains positive.

Therefore, this could explain the decline in the frequency of medium to large capital raisings in the March 2021 quarter, as already cashed-up explorers turn their focus towards exploration and investment.

Q3 - BDO EXPLORER QUARTERLY CASH UPDATE6

In the March 2021 quarter, 48 companies raised $10 million or more, five more than the 43 companies recorded in December. Of the 48 companies, there were 10 gold companies, nine lithium companies, four uranium companies, four rare earth metals companies, four graphite companies and the remaining 17 companies were across 14 different sectors, most notably copper-gold, copper and oil and gas.

Paladin Energy Limited (‘Paladin’) recorded the largest financing inflow for the March 2021 quarter, raising $192.5 million through a $128.5 million institutional placement and a $64 million entitlement offer. The funds raised form part of a total $218.7 million equity raise intended to be applied to the full redemption of outstanding senior secured notes to strengthen the Company’s balance sheet for an improved financial flexibility in restarting uranium mining operations at its Langer Heinrich Mine. The residual $26.2 million was raised subsequent to the March 2021 quarter and therefore, not recorded in our data for this quarter.

Piedmont Lithium Limited (‘Piedmont’) recorded its fourth straight quarter of significant financing inflows, raising over $160 million through a public offering for the development of the Piedmont Lithium Project (including feasibility studies, testwork and exploration drilling), strategic investments in Sayona Mining Limited, Sayona Quebec Inc. and other strategic initiatives, as well as for general corporate purposes.

Geopacific Resources Limited (‘Geopacific’) came in third place for the March 2021 quarter, raising $123.5 million through a placement and share purchase plan. Geopacific is also in the midst of finalising US$100 million in project funding from Sprott Resource Lending. Funds raised by Geopacific are to be allocated to the development of the Woodlark Gold Project in Papua New Guinea and other exploration opportunities.

FUND FINDERS

Company Name Commodity Mechanism of Raising

Paladin Energy Limited Uranium $192.19* million in proceeds from the issue of shares

Piedmont Lithium Limited Lithium $160.78* million in proceeds from the issue of shares and $0.04* million in proceeds from the exercise of options

Geopacific Resources Limited Gold $123.49 million in proceeds from the issue of shares

Vulcan Energy Resources Limited Lithium $119.75 million in proceeds from the issue of shares and $0.78 million in proceeds from the exercise of options

Cyprium Metals Limited Copper-Gold $90.00 million in proceeds from the issue of shares

Ioneer Limited Lithium $80.00 million in proceeds from the shares

Tulla Resources Plc Gold $78.30 million in proceeds from the issue of shares and $0.45 million in proceeds from borrowings

Hastings Technology Metals Limited Rare Earth Metals $69.31 million in proceeds from the issue of shares

EcoGraf Limited Graphite $54.60 million in proceeds from the issue of shares

Deep Yellow Limited Uranium $42.80 million in proceeds from the issue of shares and $2.44 million in proceeds from the exercise of options

Vital Metals Limited Rare Earth Metals $43.00 million in proceeds from the issue of shares and $0.93 million in proceeds from the exercise of options

American Pacific Borates Limited Borate $39.49 million in proceeds from the issue of shares and $3.76 million in proceeds from the exercise of options

Core Lithium Limited Lithium $40.50 million in proceeds from the issue of shares and $0.934 million in proceeds from the exercise of options

Capricorn Metals Limited Gold $0.19 million in proceeds from the exercise of options and $40.00 million in proceeds from borrowings

Element 25 Limited Manganese $35.50 million in proceeds from the issue of shares

Talga Group Limited Graphite $30.10 million in proceeds from the issue of shares and $1.48 million in proceeds from other sources

Silver Mines Limited Silver $30.00 million in proceeds from the issue of shares and $0.75 million in proceeds from the exercise of options

Magnis Energy Technologies Limited Graphite $30.33 million in proceeds from the issue of shares

Genmin Limited Iron Ore $30.31* million in proceeds from the issue of shares

The companies that raised funds (through debt and/or equity) greater than, or equal to $10 million during the March 2021 quarter are set out below:

*Appendix 5B numbers were reported in foreign currency and have been converted to AUD using the relevant spot exchange rates at 31 March 2021. Therefore, possibly subject to minor rounding differences.



Argosy Minerals Limited Lithium $30.00 million in proceeds from the issue of shares

Lake Resources NL Lithium $23.63 million in proceeds from the issue of shares and $2.10 million in proceeds from the exercise of options

KGL Resources Limited Copper $21.57 million in proceeds from the issue of shares

Allegiance Coal Limited Coal $18.41 million in proceeds from the issue of shares, $2.00 million in proceeds from the issue of convertible debt and $0.09 million from other sources

Northern Minerals Limited Rare Earth Metals $20.00 million in proceeds from the issue of shares

Peel Mining Limited Copper $18.55 million in proceeds from the issue of shares

88 Energy Limited Oil and Gas $18.53 million in proceeds from the issue of shares

Syrah Resources Limited Graphite $18.03* million in proceeds from the issue of shares

Orion Minerals Limited Copper-Zinc $17.64 million in proceeds from the issue of shares

Infinity Lithium Corporation Limited Lithium $15.10 million in proceeds from the issue of shares and $1.34 million in proceeds from the exercise of options

Queensland Pacific Metals Limited Battery Minerals $15.00 million in proceeds from the issue of shares, $0.32 million in proceeds from the exercise of options and $1.00 million in proceeds from borrowings

Calidus Resources Limited Gold $15.70 million in proceeds from the issue of shares and $0.04 million in proceeds from the exercise of options

Chalice Mining Limited Nickel-Copper $15.00 million in proceeds from the issue of shares, $0.68 million in proceeds from the exercise of options

Kalium Lakes Limited Sulphate of Potash $15.06 million in proceeds from borrowings

Lotus Resources Limited Uranium $12.50 million in proceeds from the issue of shares and $2.06 million in proceeds from the exercise of options

Kin Mining NL Gold $12.84 million in proceeds from the issue of shares

Ionic Rare Earths Limited Rare Earth Metals $12.00 million in proceeds from the issue of shares and $0.75 million in proceeds from the exercise of options

Galan Lithium Limited Lithium $11.38 million in proceeds from the issue of shares $1.26 million in proceeds from the exercise of options

Medallion Metals Limited Gold $12.50 million in proceeds from the issue of shares




Sayona Mining Limited Lithium $5.74 million in proceeds from the issue of shares, $5.20 million in proceeds from convertible debt securities and $1.23 million in proceeds from the exercise of options

Bannerman Resources Limited Uranium $12.00 million in proceeds from the issue of shares

OzAurum Resources Limited Gold $12.00 million in proceeds from the issue of shares

Big River Gold Limited Gold $11.79 million in proceeds from the issue of shares and $0.001 million in proceeds from the exercise of options

Helios Energy Limited Oil and Gas $11.44 million in proceeds from the issue of shares and $0.04 million in proceeds from the exercise of options

Eagle Mountain Mining Limited Copper-Gold $9.00 million in proceeds from the issue of shares and $2.20 million in proceeds from the exercise of options

Rox Resources Limited Gold $11.00 million in proceeds from the issue of shares

Pure Hydrogen Corporation Limited Hydrogen $9.61 million in proceeds from the issue of shares and $0.91 million in proceeds from other sources

Dateline Resources Limited Gold $1.09 million in proceeds from the issue of shares and $9.19 million in proceeds from borrowings

Venture Minerals Limited Diversified Metals $10.01 million in proceeds from the issue of shares, $0.002 million in proceeds from the exercise of options and $0.05 million in proceeds from borrowings



FINANCING INFLOW BY COMMODITY – FUND FINDERS – MARCH QUARTER 2021

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Diversified Metals

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We knew the battery minerals industry has been hot in recent times, however the current dominance of lithium and other battery minerals companies in terms of fund raisings, surprised even us. Clean energy alternative, uranium, also appeared to be an attractive investment, raising the third most funds among our Fund Finders.

Equity continued to be the preferred source of investment, accounting for 95% of Fund Finder funds raised in the March 2021 quarter.

FINANCING INFLOW BY COMMODITY - TOP 48 EXPLORERS - MARCH QUARTER 2021


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Fund raising by gold companies continued to be robust, but not as dominant as it has been in prior quarters. As shown in the Fund Finder chart for the calendar year 2020, gold finished as the darling of the financial markets, having raised more funds than all other commodities combined.

This quarter, however, showed a shift in emphasis away from the “safe haven” commodity to “up-and-coming” metals such as lithium, uranium, rare earths and graphite. This shift to an extent is unprecedented, as gold and oil and gas companies have historically always been the top two Fund Finders, albeit we also observed a remarkable level of funds raised by sulphate of potash companies in 2020. As referred to in recent quarters, oil and gas companies have been losing traction in terms of significant funds raised, and this has appeared to occur to an even larger extent in the March 2021 quarter.

FINANCING INFLOW BY COMMODITY - CALENDAR YEAR 2020


A recent report by UBS predicted that by 2030, EV adoption rates globally will grow by up to 50%, with the number of EVs expected to increase to 46 million up from 3 million last year. Global demand for battery minerals such as lithium, graphite, nickel, rare earth metals, cobalt and copper are all expected to jump exponentially to accommodate this trend as the world continues to work towards a low-carbon economy.

Demand for lithium in particular is expected to lift 11-fold, with lithium-ion batteries still being the preferred rechargeable battery type used in EVs, due to its high energy density, lightweight and long life cycle. Australia is well positioned to benefit from this trend as its lithium is primarily mined from hard rock spodumene, which can often be converted to high purity lithium for batteries. This is compared to the lithium being mined from salt lakes or brine deposits which tend to deliver a lower grade. According to the United States Geological Survey (‘USGS’), Australia accounted for 49% of global lithium production and 22% of global lithium reserves in 2020.

BATTERY MINERALS ON THE RISE

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GLOBAL LITHIUM PRODUCTION 2020

GLOBAL LITHIUM RESERVES 2020

Source: USGS, 2021


It is no wonder that funds flooded the lithium market in the March 2021 quarter, as investors backed explorers looking to advance their projects towards production in the coming decade. We observed that most of the large fund raises were made for the purpose of undertaking development activities, feasibility studies, and drilling programmes.

One such investor is Hancock Prospecting (HPPL Group), run by Gina Rinehart, who alongside her son John Hancock, participated in the $120 million placement by German-based lithium player Vulcan Energy Resources Limited (‘Vulcan Energy’). Funds raised from the placement will be put towards the development of its Zero Carbon Lithium Project in Germany.

Interestingly, the three largest fund raises by lithium companies in the March 2021 quarter were by companies with overseas projects. Apart from Vulcan Energy which is German-based, Piedmont and Ioneer Limited (‘Ioneer’) also completed large placements to advance the development of their projects in the USA. Lithium produced from these overseas projects are expected to support the supply chain of their respective local jurisdictions.

Rare earth metals, graphite and copper, all of which have EV motor and rechargeable battery applications, also appeared to be favoured by investors in the March quarter.

Advanced rare earths developer, Hastings Technology Metals Limited (‘Hastings’) reported raising $69 million in the quarter with an additional $33 million received from its Tranche 2 placement just after the end of March (not captured in our data). Proceeds from the raise will be used to advance development of its Yangibana Rare Earths Project, which hosts high-grade neodymium praseodymium oxide (‘NdPr Oxide’), a raw material used in the manufacturing of magnets with applications in consumer electronics and EV manufacturing.

EcoGraf Limited (‘EcoGraf’), which is developing the Epanko Graphite Project in Tanzania raised $55 million through an institutional placement. It is worth noting that funds raised from the placement will be used to accelerate the construction of the company’s processing facility in Western Australia, which seeks to produce high-purity graphite anode material for lithium-ion battery manufacturing in Asia, Europe and North America.

Highly favourable copper prices have benefitted copper explorers, with Cyprium Metals Limited (‘Cyprium’), KGL Resources Limited (‘KGL’), Peel Mining Limited (‘Peel’), Orion Minerals Limited (‘Orion’) and Eagle Mountain Mining Limited (‘Eagle Mountain’) all able to raise a significant amount of funds in the March 2021 quarter.

Unbeknown to some, almost 183 lbs of copper is required for a typical battery EV as compared to conventional cars which only contain 18 to 49 lbs of copper and hybrid electric vehicles which contain 85 lbs. Therefore, the demand for copper is also set for an exponential increase in line with global EV adoption rates.


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LONDON METALS EXCHANGE COPPER SPOT PRICE (US$/TONNE)The spike in copper prices to a nine-year high was not only driven by the bullish outlook on battery minerals, but also by the push for clean, renewable energy as a whole. The demand was also further expanded by the growth in general infrastructure development as more countries recover from the global pandemic. Copper plays a huge role in the energy and construction sectors because of its highly conductive qualities and is an integral component of the world’s push towards green initiatives.

With USA’s reinstatement to the Paris Climate Agreement under President Joe Biden, and with more countries pledging toward net zero carbon emission or reduced carbon emission economies, BDO expects that copper and other battery minerals explorers will be favoured in the next few years. We have already observed in our IPO pipeline a higher number of copper explorers coming on to the ASX.

Although not directly related to battery mineral exploration, uranium explorers like Paladin, Deep Yellow Limited (‘Deep Yellow’), Lotus Resources Limited (‘Lotus’) and Bannerman Resources Limited (‘Bannerman’) had also found great success in raising funds for the March 2021 quarter. The strategic importance of uranium as a clean energy alternative has grown significantly in recent periods, particularly with Joe Biden’s recent announcement of a possible US$2 trillion climate change plan that includes nuclear power.

Another clean energy resource that has made its way into our Fund Finders section for the very first time, is hydrogen, which some still consider a very early-stage industry. Pure Hydrogen Corporation Limited (‘Pure Hydrogen’), which was formed through the merger of two energy companies, Real Energy Corporation Limited (‘Real Energy’) and Strata-X Energy Limited (‘Strata-X’) in March 2021, raised over $9 million in funds through a placement of shares to advance its hydrogen operations.

The trend for the March 2021 quarter clearly indicates that investors and exploration companies are positioning themselves in response to the current push towards clean energy, low carbon emissions and the growing transition toward EVs globally. BDO expects that we will continue to see activity from these companies as the emphasis on ESG continues to be a central theme in future quarters.


NET INVESTING CASH FLOWS

For consistency across all quarters, we note that our analysis of net investing cash

flows for the March 2021 quarter excludes exploration and evaluation expenditure

that is capitalised. We have instead included this under exploration expenditure.

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NET INVESTING CASH FLOWS ($M)

At first glance, net investing cash outflows appeared to show a significant decline of 33% from $536 million in the December 2020 quarter to $357 million in the March 2021 quarter. However, as noted in our previous issue, a large proportion of last quarter’s investment outflow was attributable to Karoon Energy Limited (‘Karoon Energy’), which recorded net investing cash outflows of $202 million relating to its acquisition of new tenements (Concession BM S-40) in the offshore Santos Basin of Brazil.

When excluding this as an outlier, net investing cash outflows would instead show a 7% increase from an adjusted $334 million in the December 2020 quarter, indicating that spending on investment has actually held relatively steady since the 164% increase in December.


As illustrated below, the proportion of net investing outflows, inflows and nil cash flows for the March 2021 quarter is exactly the same as the December 2020 quarter, reaffirming that trends in investment spending have remained generally in line with the last quarter.

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INVESTING CASH FLOWS (%)Salt Lake Potash Limited (‘Salt Lake Potash’), one of the consistent leaders of investment spending in the last four quarters, recorded the largest investment spend for the March 2021 quarter of $55 million. This continued to be in relation to the development of its mine properties at the Lake Way Project, where the process plant is nearing completion and sulphate of potash sales are expected in the June 2021 quarter. Investment spending by Salt Lake Potash has consistently been supported by its continued ability to raise funds from both debt and equity.

Cyprium Metals Limited (‘Cyprium’) recorded the second largest investment spend of $34 million of which $27 million was used to pay for the acquisition of the Paterson Copper Assets from Metals X Limited (‘Metals X’). Cyprium managed to raise $90 million in the March quarter through an oversubscribed placement for the acquisition as well as to advance development studies for the near-term production opportunity, early works and general working capital for the Paterson Copper Assets.


Similar to investment spending, exploration expenditure also appeared to hold steady in the March 2021 quarter. Total exploration expenditure experienced a decrease of 6% from $587 million in the December 2020 quarter to $549 million in the March 2021 quarter. However, this remained 18% higher than the two-year average of $464 million.

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TOTAL EXPLORATION EXPENDITURE ($M)

EXPLORATION EXPENDITURE


The graph below shows that the decline in exploration expenditure since the December quarter of 2020 was primarily driven by the significantly lower number of companies spending between $4 million and $6 million on exploration. However, this was offset by the growth in exploration spending in the tranches of $0.5 million to $1 million, as well as $2 million to $4 million.

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NUMBER OF COMPANIES BY EXPLORATION EXPENDITURE

Although we expect that exploration activity will continue to grow in light of strong cash balances and the higher number of listed exploration companies, the extent of exploration spending growth will be limited by the availability of resources, particularly in relation to drilling services and assay testing.

We understand from several of our mining services clients that nearly all drill rigs are operating at full capacity and that there is a sector-wide shortage of skilled labour. The issue that this poses for the sector is that drilling services companies have become more selective in the size of drilling programmes (in terms of metres drilled) that they take on. Explorers have had to expand or revise their proposed drilling programmes and as a result conduct more studies and surface sampling on their tenement areas.

High demand for sample testing has also created a backlog in laboratories, which is leading to extensions of turnaround periods for results.

Among the ten largest exploration spenders in the March 2021 quarter, five were gold companies, four were oil and gas companies and one was focused on nickel-copper exploration. The dominance in exploration spending by gold and oil and gas companies is generally in line with the trend we have seen in previous quarters.


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Total Administration Expenditure Average Administration Expenditure

Total administration expenditure recorded an 11% decrease in the March 2021 quarter to $171 million, which is equivalent to the two-year average of $171 million since the quarter of March 2019. The average administration expense incurred by exploration companies also decreased from $0.29 million to $0.26 million from the December to March quarter.

This may partly be due to the cyclical nature of administration costs which comprise mainly of listing fees, professional fees, director fees and other corporate costs. The chart on the right illustrates that against a four-year backdrop, administration expenditure tends to be lower in March and June quarters, and higher in September and December quarters.

ADMINISTRATION EXPENDITURE ($M)

ADMINISTRATION EXPENDITURE


658 companies lodged an Appendix 5B for the March 2021 quarter, which represents an increase of two companies from the 656 in the previous December 2020 quarter. A key driver of the increase was the 11 exploration companies that recently completed IPOs and lodged an Appendix 5B for the first time in the March 2021 quarter, including:

X 92 Energy Limited;

X Auric Mining Limited;

X Australian Gold and Copper Limited;

X Bastion Minerals Limited;

X Firebird Metals Limited;

X Genmin Limited;

X Mamba Exploration Limited;

X Medallion Metals Limited;

X OzAurum Resources Limited;

X Peregrine Gold Limited; and

X Tulla Resources Plc.

However, while the surge in IPOs continued into the March 2021 quarter, we also observed eight removals from the ASX official list. The number of companies and the reasons for their removals include;

X Five companies removed for continuous suspension of securities for more than 2 years (ASX Listing Rule 17.12);

X Two companies removed at the request of the company pursuant to ASX Listing Rule 17.11. Interestingly, the reasons for the request for both companies included a redomiciliation component; and

X One company removed for non-payment of annual listing fee (ASX Listing Rule 17.15)

NUMBER OF COMPANIES LODGING APPENDIX 5B REPORTS: JUNE 2013 – MARCH 2021


As noted in previous quarters, there has been a declining trend in the number of companies lodging an Appendix 5B since June 2013. In June 2013 (when we commenced our analysis), there were 860 companies that lodged quarterly cash flow reports, with a peak over the period of 865 companies in September 2013. This was before the sharp decline from the March 2014 quarter to the December 2016 quarter, when we observed many exploration companies either being delisted or being used as listing vehicles for backdoor listings, primarily by technology and biotechnology companies.

With the increasing number of exploration IPOs on the ASX, we expect to see a reversal of this trend in coming quarters, with the December 2020 and March 2021 quarters kick-starting this reversal. In addition, accommodative financial conditions coupled with surging commodity prices is anticipated to be a catalyst in increasing the number of junior explorers on the ASX. However, whether this brings the sector back to historically observed number of exploration companies remains uncertain.

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NUMBER OF COMPANIES TO LODGE 5B REPORTS FROM JUNE 2013 - MARCH 2021



A total of 15 companies that reported Appendix 5Bs in the December 2020 quarter did not report Appendix 5Bs in the March 2021 quarter for the following reasons:

X Eight aforementioned removals from the official list;

X One company currently under suspension;

X Two gold companies that were the subject of M&A activity, namely Cardinal Resources Limited and NTM Gold Limited;

X The merger of two companies, Real Energy and Strata-X to form Pure Hydrogen (lodged an Appendix 5B this quarter); and

X Two producing companies that elected to lodge an Appendix 5B in the December 2020 quarter but not in March 2021 quarter.

The decrease in the number of companies lodging Appendix 5Bs in the March quarter was more than offset by:

X The aforementioned 11 companies that recently completed an IPO and lodged an Appendix 5B for the first time in the March 2021 quarter;Two companies that lodged their December 2020 quarter Appendix 5B late and hence were not captured in our December 2020 quarter data;

X Two companies that previously did not lodge an Appendix 5B due to their producer status;

X Pure Hydrogen lodging an Appendix 5B for the first time after the merger of Real Energy and Strata-X; and

X A reverse takeover by PVW Resources Limited resulting in its first-time lodgement

As at the date of our report, BDO has observed a total of 22 exploration companies that have either listed on the ASX subsequent to the March 2021 quarter, or are included in the ASX’s list of upcoming floats. With the expectation that some of these companies will be likely to lodge Appendix 5Bs next quarter, the total number of companies lodging Appendix 5Bs is expected to increase in the June 2021 quarter.

The 2020 calendar year was a turbulent time for exploration companies, with the sector facing sharply declining commodity prices, uncertainty which dampened financial markets and travel restrictions which impacted operations. However, this remains a distant memory for many of us across Australia, where today, we witness commodity prices hitting multi-year highs, record-breaking financing inflows and an unprecedented number of new explorers listing on the ASX.

The first quarter of 2021 has certainly proven to be a strong start to the year for Australian explorers, and in our view, is showing signs of a transition away from mere recovery to a new focus on ESG. Whilst the impact of COVID-19 is still prevalent in many areas around the world, and few can claim to be completely out of the woods, the rollout of the vaccine and the recovery of world’s major economies has boosted investor confidence towards global markets. We set out below the three key trends, which we expect to drive sector performance in coming quarters.

BDO INSIGHTCOVID-19 RECOVERY TURNS FOCUS ON ESG

STRONG DEMAND FOR COMMODITIESAs economic activity recovers, so too will spending on infrastructure and development, supported by government stimulus efforts around the world.

In Australia, the Federal Budget for 2021-22 saw the Federal Government committing a further $15.2 billion in additional infrastructure funding across the country as part of its ongoing $110 billion, ten-year JobMaker Infrastructure Investment Plan. More significantly in China, the post pandemic fiscal stimulus package has accelerated investment into infrastructure, which has been the root cause of the growing demand for commodities such as copper and iron ore, both of which have recently hit all time high prices.

In addition, after seeing a flurry of predominantly gold IPOs on the ASX in the second half of 2020, we are now also starting to see many copper IPOs such as QMines Limited, Kincora Copper Limited and Black Canyon Limited. This indicates that Australian explorers are positioning themselves for a potential global supply shortage, not just for infrastructure input commodities like iron ore, but also for EV-related battery minerals.

STEADY INFLOW OF FUNDSGlobal interest rates are still at record-lows and are expected to remain so for the foreseeable future. The Reserve Bank of Australia (‘RBA’) stated in its May board meeting minutes that an uplift of the cash rate before 2024 is “unlikely”. Investors, both institutional and retail, will likely continue to turn to equity markets in pursuit of higher returns. Furthermore, strong commodity prices for most metals will continue to attract funding for the exploration sector.

The Australian Government also announced the extension of the Junior Minerals Exploration Incentive Program (‘JMEI’) to the end of June 2025, investing $100 million over four years into the exploration sector. The JMEI extension complements the existing government support for greenfield exploration, including the $225 million Exploring for the Future Program run by Geoscience Australia.


ESG

ESG has become an inescapable point of emphasis at any conference or company presentation in the business world today. The global push for lower carbon emissions and clean energy has put a spotlight on EV-related commodities and “greener” energy alternatives, which we have already started to witness in the March 2021 quarter.

The way in which these commodities are sourced is also a key consideration point for today’s investors. For example, even though cobalt forms a major component of rechargeable batteries used in EVs, almost 70% of the world’s cobalt is sourced from the DRC, which is often associated with ESG concerns around ethical labour and sustainability. Australia, having almost 20% of the world’s cobalt reserves, is well positioned to capture a significant portion of future demand.

Australian explorers will therefore need to continue to place greater emphasis on demonstrating a mature approach to ESG matters in their operations.


ESG

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained herein without obtaining specific professional advice. Please contact the appropriate BDO Member Firm to discuss these matters in the context of your particular circumstances. Neither the BDO network, nor the BDO Member Firms or their partners, employees or agents accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

BDO is an international network of public accounting, tax and advisory firms, the BDO Member Firms, which perform professional services under the name of BDO. Each BDO Member Firm is a member of BDO International Limited, a UK company limited by guarantee that is the governing entity of the international BDO network.

Service provision within the BDO network is coordinated by Brussels Worldwide Services BVBA, a limited liability company incorporated in Belgium with its statutory seat in Zaventem.

Each of BDO International Limited, Brussels Worldwide Services BVBA and the member firms of the BDO network is a separate legal entity and has no liability for another such entity’s acts or omissions. Nothing in the arrangements or rules of the BDO network shall constitute or imply an agency relationship or a partnership between BDO International Limited, Brussels Worldwide Services BVBA and/or the member firms of the BDO network. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

© Brussels Worldwide Services BVBA, November 2020

FOR MORE INFORMATION:

Twitter: @BDOglobalNR

@BDOAustraliaNR

LinkedIn Groups: BDO Global Mining

BDO Global Energy

CONTACT US SHERIF ANDRAWES Head of Global Natural Resources Tel: +61 8 6382 4763 [email protected]

ADAM MYERS Partner, Corporate Finance Tel: +61 8 6382 4751 [email protected]

ASHTON LOMBARDO Associate Director, Corporate Finance Tel: +61 8 6382 4917 [email protected]

GARETH FEW Partner, Audit & Assurance Tel : +61 2 9240 9744 [email protected]

JAMES MOONEY Partner, Audit & Assurance Tel: +61 3 9603 1796 [email protected]

SCOTT BIRKETT Partner, Corporate Finance Tel: +61 7 3237 5837 [email protected]

DAVID FECHNER Partner, Tax & Advisory Tel: +61 8 7421 1413 [email protected]

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