AESC Perth 2008

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Junior Mineral Exploration IPOs

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AESC Perth 2008

  1. 1. Being Smarter With Our Data Australian junior exploration floats, 2001–06: strategy, capital structure and performance Oliver Kreuzer, Mike Etheridge &Pietro Guj
  2. 2. Scope of Study 179 juniors that listed on the ASX from July ‘01 to June ‘06  In July ‘06 these companies constituted more than 33% of the total number of ASX-listed junior mineral exploration companies Our definition of “junior explorers”  Have no income from existing mines  Depend on raising equity funds from the public for exploration activities Main aims  Build a basic picture of how these companies invested their capital  Assess market opinion as to their business performance as explorers
  3. 3. Methodology Data sources  Company and budget data • Prospectus documents • ASX announcements (www.asx.com.au)  Share price data • The Australian Newspaper • InvestSmart (www.investsmart.com.au) • Factiva (www.factiva.com.au)  Measures of quarterly consumer inflation • Reserve Bank of Australia
  4. 4. Methodology Data sources (cont.)  Commodity prices • KITCO (www.kitco.com) • LME (www.lme.co.uk) • UxC (www.uxc.com)  ASX indices • Factiva (www.factiva.com.au)  US dollar prices • Factiva (www.factiva.com.au)
  5. 5. Methodology Main database columns  Name – Symbol – IPO date  Target commodities  Project locations – Number of projects – Tenement holdings (sq km)  Exploration stages of projects / project portfolios  Number of shares – Share prices – Market caps  Equity funds raised – Costs of the offers  Budgets vs. actual expenditure – Unallocated capital – Pre-offer cash
  6. 6. Number of Floats by Financial Year (FY) 140 Scope of this study 118 120 100 86 Onset of the Number 80 commodity price boom 59 60 50 39 40 20 15 16 9 10 3 5 6 1 2 2 0 Financial Year
  7. 7. Target Commodities 150 141 125 Number of Companies 100 75 55 55 50 29 26 25 12 11 9 7 0 Commodity
  8. 8. Number of Projects 30 26 25 23 22 21 Number of Companies 20 19 15 15 14 10 8 8 6 6 5 3 3 2 1 1 1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Number of Projects
  9. 9. Area under Tenement 100 89 Number of Companies 80 65 60 40 20 14 11 0 Size (km2)
  10. 10. Exploration Stage 90 80 70 Number of Projects 60 50 40 30 20 10 0 B C D E Exploration Stage (after Lord et al., 2001)
  11. 11. Preferred Target Commodities 100% 90% 80% 70% 60% Ratio 50% 40% 30% 20% 10% 0% 2001-02 2002-03 2003-04 2004-05 2005-06 Diamonds 6% 0% 4% 5% 1% Iron 0% 0% 0% 3% 3% Silver 0% 4% 0% 5% 3% Other Commodities 0% 0% 1% 13% 3% Platinum 19% 4% 6% 4% 7% Nickel 13% 8% 20% 16% 12% Uranium 0% 0% 0% 5% 16% Base Metals 16% 8% 11% 15% 20% Gold 45% 75% 57% 34% 35% By FY and as a percentage of the total number of target commodities
  12. 12. Preferred Exploration Destinations 100% 90% 80% 70% 60% Ratio 50% 40% 30% 20% 10% 0% 2001-02 2002-03 2003-04 2004-05 2005-06 TAS 0% 2% 0% 2% 2% VIC 5% 0% 1% 4% 3% NT 1% 2% 7% 5% 7% NSW 1% 9% 8% 4% 8% QLD 2% 12% 7% 19% 10% Overseas 14% 1% 15% 17% 13% SA 22% 2% 4% 11% 13% WA 54% 71% 58% 38% 44% By FY and as a percentage of the total number of projects
  13. 13. Capital Raising $300,000,000 $250,000,000 Total Raised Capital $200,000,000 $150,000,000 $100,000,000 $50,000,000 $0 Financial Year
  14. 14. Capital Raising All Floats JuniorExplorers Financial Year Median Capital Percentage of All Raised Capital Raised Capital Raising Raised Capital 2001-02 $5,500,000,000 $62,870,000 $4,000,000 1.1% 2002-03 $5,800,000,000 $56,473,251 $4,500,000 1.0% 2003-04 $12,700,000,000 $239,796,609 $4,000,000 1.9% 2004-05 $14,900,000,000 $184,054,135 $3,053,500 1.2% 2005-06 $23,100,000,000 $273,565,291 $4,000,000 1.2% Median $12,700,000,000 $184,054,135 $4,000,000 1.3% Capital raisings of junior explorers are insignificant despite their relatively substantial proportion of the total number of floats (in the range of 9% to 33%)
  15. 15. Capital Raising Raised Capital $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 Financial Year
  16. 16. Stock Market Performance ‘Index-Hugger’ ‘Faller’ ‘Jump-Faller’ ‘Jump-Riser’ S&P/ASX 200 Materials Index
  17. 17. Stock Market Performance October 2006*  41 % of the juniors traded below their issue price (11% lost 50% or more)  2% traded at their issue price  57% traded above their issue price (12% gained 300% or more) June 2008** (crude analysis)  44% of the juniors traded below their issue price  3% traded at their issue price  53% traded above their issue price *Based on 169 of the 179 juniors **Based on 114 of the 179 juniors
  18. 18. Stock Market Performance Main outcomes of performance analysis  Based on the prospectus data it is virtually impossible to pick future winners / losers  High levels of funding, technical expertise and management experience are obvious critical success factors  However, the success of new companies seems to be linked mainly to the capacity of the board and technical team to identify, pursue and realise value from business opportunities
  19. 19. Stock Market Performance Main outcomes of performance analysis (cont.)  Most companies can do well in a “hot market” where investor money is readily available  The same is true for share portfolios: any broad combination of shares in junior explorers will perform well under booming market conditions Recent events in global financial markets have clearly illustrated the fragile nature of the junior sector and its dependence upon buoyant market sentiment
  20. 20. Transitions from Explorer to Miner 179 Companies Timeframe = 5 Years 970 Projects 10 Mining Operations 3 Historic 0 New 6 Acquisitions 1 Joint Venture Mines Discoveries Success rates by number of companies by number of projects = 10 / 179 = ca. 5% = 10 / 970 = ca. 1% These figures do not account for successes realised from project sales!
  21. 21. The “typical” Junior Exploration Float Raised ca. A$4 million at IPO to finance a 2-year, mainly greenfields exploration program  Ca. 67% of raised capital earmarked for exploration  Ca. 33% absorbed in the costs of the offering and corporate overheads  Once IPO costs are paid, ongoing corporate overheads average ca. 28% of the total operational expenditure  Commonly has 5 projects, mainly at the prospect definition stage, although most have 1 ‘‘flagship’’ project with targets to be drill tested within the 1st year of listing

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