There’s an M&A wave coming for the exploration sector

afr.com:

Tightening capital markets and strong commodity prices are combining to create the “ideal” conditions for consolidation of the ASX-listed exploration sector, which shrank for the first time in almost three years in the June quarter.

Advisory firm BDO said seven of the 787 pre-revenue explorers on the ASX at March 31 were acquired in the subsequent three months, helping to shrink the bourse’s most populous sector to 779 companies by June 30.

While pre-revenue explorers still accounted for more than 35 per cent of all ASX-listed entities at June 30, it was the first sequential decline in the number of explorers since September 2020, when low interest rates triggered a record-breaking period of cash inflows to the high-risk sector.

BDO global head of natural resources Sherif Andrawes said the shrinking number of explorers “likely signifies the commencement of a healthy wave of consolidation activity across the sector”.

“This appears to be driven by tightening capital markets and rising input costs, both of which pose as significant challenges to project development for standalone exploration entities.

“During periods of abundant cash reserves and favourable financing conditions, explorers are typically able to independently advance their respective projects, resulting in fewer instances of consolidation.

“Today there is more uncertainty, and less cash is available. However, commodity prices continue to remain strong against historical levels which is a real positive for explorers.

“Commodity prices being strong while capital markets are weak provides an ideal combination of merger and acquisition activity. Consequently, many explorers are now inclined to advance their projects via consolidation, choosing this route over