Capital returning to resources & energy sector

Capital returning to resources sector(IQ)

Investors are showing renewed confidence in Australia’s resources and energy sector, with some $1150 million raised in the December quarter.

The increased capital resulted in a net cash gain of $275 million for the 644 resources companies that lodged Appendix 5B cash flow reports, marking the biggest increase in five quarters, according to analysts Austex Resource Opportunities.Thirty-six companies raised $5 million or more, while 142 companies raised $1 million or more, which according to Austex is the minimum required to support flagship project status over two quarters.Total cash held amounted to $4025 million, the highest level since Q4 2018.

Austex principal consultant Rob Murdoch (left) said recent exploration success for copper-gold porphyries in the Lachlan Fold Belt of New South Wales and the Paterson Province in Western Australia, along with new gold discoveries in Western Australia and oil and gas discoveries in North America, had fuelled the growth.

“An area of concern however to Austex is the exploration companies with market capitalisations under $10 million, and in particular under $5 million,” he said. “They make up 27 per cent of the junior resources sector but spent only an average of $125,000 (on exploration) in Q4 2019, yet they spent an average of $119,000 on administration and raised only $175,000 on average.

“The best option for these companies is to restructure and have new, market-attractive projects vended in.”

Looking ahead, Mr Murdoch said the increased investor appetite for resources companies should stand the sector in good stead for 2020.

“Miners with solid projects that are making the necessary investments are being supported by investors. We look forward to the market recognising the value of such spending in coming quarters as confidence in the sector continues to improve,” he said.