Risk aversion was identified today as the largest single overhang on any efforts by Australia’s junior exploration ranks to raise fresh capital or bring new public floats to market.
The comment was made by Sydney-based strategic investment advisor and former funds manager, Andrew Brown, delivering his non-executive chairman’s address in Adelaide to shareholders of copper-gold focused explorer Adelaide Resources.
In a detailed breakdown of market conditions facing the junior explorers over calendar 2013, Mr Brown said while Adelaide Resources had been buoyed through 2012 by its strong copper discoveries in South Australia’s historic Moonta province, nonetheless the outlook for the sector was far more bleak for those not able to fund sufficient work to enable discoveries.
Mr Brown also used his address to flag a return by Adelaide Resources next year to fresh new work for the first time in 10 years on the Company’s prospective gold tenements on SA’s Eyre Peninsula and to assign the bulk of next year’s exploration budget for detailed work at Moonta which yesterday delivered new copper intersections grading 1.14 per cent over a 22m intersection.
“We are conscious of the fact that the environment for decision making by executives and directors of smaller resource exploration companies was particularly tough in 2012,” Mr Brown said.
“In the past year, it has become far harder for these companies to raise any equity capital at all.
“There are structural features at work such as the decline of advisory stockbroking and electronic direct access technology. The key negative features would, however, appear to be more cyclical in nature with risk aversion the major dampening factor.
“This can be seen through investors flocking to hybrid securities, with little regard for the relative pricing of credit risk, and the continued disinterest in new issuance. However, there has been notable enthusiasm for companies which made good discoveries during the year.”
Mr Brown pointed to the most recent S&P/ASX Small Resources index performance as reflective of the challenges facing junior explorers.
“This index has fallen from 5279 points at 31 October 2011 to 4074 at the end of October this year – a 23 per cent decline,” Mr Brown said.
“At its nadir late in July 2012, the index was actually close to 35 per cent down compared to the previous year and although recovered slightly, remains at the levels of July 2009.
“The impact of this risk aversion can be seen most clearly in the market for initial public offerings in the smaller resources area. In the first 11 months of 2012, only 22 new resources floats on the ASX focused on minerals and raised a total of just $96.5 million.
“The average offering size was $4.4 million, and nine of the 22 companies raised $3 million or less. To compound the misery, half of the 22 securities now trade below their offer price.”
“With capital in such short supply, junior resources directors have had little choice but to be as prudent as possible with respect to costs, whilst ensuring an as active a program as possible.”
Adelaide Resources managing director Chris Drown told shareholders the company planned a strategic meeting mid next month to decide just which prospects on the Moonta copper holding would be prioritised for further drilling.
“We are in the mixed position of having the upside of multiple high calibre copper targets around Moonta to drill but having to balance that against available and prudent expenditure which dictates that not all prospects, however promising, will necessarily attract near-term drilling scheduling in 2013,” Mr Drown said.
“In 2013, we aim to reinvigorate our gold exploration effort on the Eyre Peninsula as we have always believed in the highly attractive and prospective nature of these tenement.”
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