Diminished valuations of lithium explorers could be a catalyst for sector M&A, while gold surpasses uranium in rattling the tin, according to BDO.
Diminished lithium explorer valuations could be a catalyst for sector M&A as juniors may look towards consolidation over raising capital at current values, according to BDO.
In its latest explores quarterly report, BDO said if those battery metal explorers needed to raise capital, it was likely to be highly dilutive to existing shareholders at current values.
“Interestingly, following a strong year of fundraising for lithium explorers in 2023, unfavourable market conditions have led to cash depletion in the first two quarters of 2024, despite lithium exploration expenditure decreasing quarter-on-quarter,” BDO wrote.
“Given current valuations of lithium explorers, if capital raises are required, they are likely to be highly dilutive to existing shareholders.
“This may be a catalyst for lithium sector M&A as companies look to consolidation rather than attempting to raise capital at low values."
Further, BDO said larger players were in a prime positive to acquire developing and producing assets in favourable, low-cost mining jurisdictions.
In lithium, fundraising lifted 135 per cent to $118.9 million for the quarter, but BDO said that was up from the very low base in the March quarter when capital raises for the battery metal “fell off a proverbial cliff”.
“Despite the rebound, the bearish market sentiment towards lithium is still impacting the level of funds flowing to lithium explorers,” BDO wrote.
Lithium explores such as Vulcan Energy Resources raised $64 million with the helping hand of Gina Rinehart’s Hancock Prospecting.
In terms of exploration spend, battery metal players Galan Lithium, Latin Resources, Winsome Resources and Delta Lithium collectively spent $67 million in the quarter.
BDO said the continuation of exploration activities in the lithium sector, amid dwindling prices, suggested at a positive long-term outlook.
“[With] lithium explorers prioritising long-term economic extraction over short-term forecasts, driven by demand and supply imbalances,” BDO wrote.
Gold dominated the quarter and took first rank in BDO's report, with the “safe haven” precious metal surpassing uranium despite the politically-charged commodity's investor popularity.
Over the June quarter, explorers raised a total of $2.95 billion, a significant increase of 82 per cent from the March quarter, of which $1.14 billion was raised by gold explorers.
That was informed by the likes of De Grey Mining's mammoth $600 million equity raising to funds its Hemi gold project in the Pilbara.
It meant gold rose to the top position for the first time since June 2023, according to BDO, raising more funds than uranium, now in second place.
“Gold's dominance in this quarter’s analysis highlights its enduring appeal as a 'safe haven' asset,” BDO global head of natural resources Sherif Andrawes said.
“As global economic conditions fluctuate and commodity prices remain volatile, gold continues to attract significant investment.”
Uranium fund finders raised $290 million for the quarter, led by the likes of Deep Yellow and Peninsula Energy.
BDO said that reflected ongoing interest “despite Australia’s still-undefined stance on uranium’s role in its future energy mix”.
During the quarter, two companies completed initial public offerings, as the market remains subdued reflecting broader trends.
