M&A a must in 2025 as explorers see cash dry up – Stockhead

Mining › Mergers & Acquisitions

Get ready for more exploration consolidation in 2025. Pic: Getty Images

M&A a must in 2025 as explorers see cash dry up
Mining

4 hours agoDecember 11, 2024 | Josh Chiat

shareLink copied to clipboard
More mining consolidation is on the cards, BDO’s Sherif Andrawes says
The number of explorers raising significant capital is slowing, with companies increasingly reliant on debt in weak equity market
Larger companies could take on quality projects held by underfunded juniors

Experts are on the lookout for a whole lot more consolidation in the booming gold and depressed lithium sectors as capital for smaller companies gets tighter.
BDO head of global natural resources Sherif Andrawes says 2025 could be a year of M&A, suggesting the $5 billion tie-up of Northern Star Resources (ASX:NST) and De Grey Mining (ASX:DEG) is merely an overture of what’s on the horizon.
“When the money is harder to come by you have to start looking at alternatives and one of the key alternatives you always see is consolidation activity – M&A activity,” Andrawes said.
“I think the two most obvious areas, interestingly, is gold – even though the gold price is so high … there’s the opportunity there because it changes the economics.
“The other is lithium and lithium is where it’s hard to raise money … you are seeing things like the Latin Resources (ASX:LRS) and Pilbara Minerals (ASX:PLS) merger and we’ll see others like that too in the lithium space.”
BDO’s June quarter explorers quarterly cash update showed a growing gap between the haves and have nots of the mining industry, with 7% of the largest exploration companies on the ASX collecting 78% of the new capital.
Against that backdrop cash reserves continued to decline in the September quarter update,  falling 7% to $7.3bn, with the average cash on hand dropping from $10.16m to $9.52m.
Exploration spending per company – while still strong against long term trends – dropped 11% below the two year average of $1.16m, while net financing inflows fell 51% to $1.19bn and just 57% of the funds raised by companies pulling in over $10m came from equity, well below the two year average of 73%.
 
Exploration spending has slowed from ASX juniors in 2024. Pic: BDO
NOW READ: Everyone’s a target – Why gold’s M&A rush will continue
Small end of town
That environment hurts smaller explorers the most, Andrawes said, since they’re not able to access debt markets.
The largest single raising came from new lithium producer Liontown Resources (ASX:LTR), which banked $372.29m from the proceeds of debt issued by South Korea’s LG Energy Solutions in a funding package linked to spodumene offtake from its Kathleen Valley lithium mine.
Larger companies and near term producers were among the most successful fund finders, with Bellevue Gold (ASX:BGL) pulling in $150.84m in equity for the expansion of its Northern Goldfields gold mine of the same name, West African Resources (ASX:WAF) pulling a similar amount to fund a second mine development at Kiaka in Burkina Faso and uranium cohort Bannerman Energy (ASX:BMN) and Paladin Energy (ASX:PDN) sharing around $150m in debt and equity between them.
The issue of convertible notes by LTR made up around 97% of the $383.75m raised by lithium companies drawing over $10m in finance, with gold companies topping the charts again at $403.83m, followed after lithium by uranium ($160.2m), rare earths ($132.74m) and copper ($66.25m).
Also of interest, the overall number of juniors raising more than $10m more than halved in the September quarter from 47 to 22.
All up financing cash inflows slid 31% to $2bn. On a per company basis, cash inflows were 8% below the two year average at $2.68m.
It’s part of the reason Andrawes thinks M&A activity is so likely heading into 2025.
“Exploration companies are there to explore and spend money on the ground and be active,” he said.
“But if you haven’t for the money you can’t explore.
“If you’ve got a good project but you can’t raise money for it, the next best thing is to think of that consolidation and that’s where you’ll be trying to make yourself attractive to those companies that do have the funding.”
Close to half of the companies reporting Appendix 5Bs are now sitting on less than $2m in cash. Pic: BDO
 
The IPO pipeline has been similarly tepid, with BDO not predicting a recovery til mid-2025 and many of the listings Andrawes is working on involving TSX listed companies in cash starved Canada seeking brighter capital markets on the ASX.
From 26 listings a quarter in 2021, exploration IPOs have slid to 17 a quarter in 2022, six a quarter in 2023 and a trickle in 2024, with the number of companies reporting 5Bs in September falling from 775 to 767, due to a mix of delistings, takeovers and companies moving from explorer to producer status.
Gold explorers are the most cashed up on the ASX. Pic: BDO
 
Explore More Investor Guide: Gold & Copper FY2025 featuring Barry FitzGerald Read MoreGoldLithiumMergers & AcquisitionsshareLink copied to clipboard

SUBSCRIBEGet the latest Stockhead news delivered free to your inbox.

Name*Email*

This field is hidden when viewing the formEmail Lists

Morning Update

Lunch Update

Market Close Update

Weekend Update

Spotlight
EmailThis field is for validation purposes and should be left unchanged.

/* = 0;if(!is_postback){return;}var form_content = jQuery(this).contents().find(‘#gform_wrapper_2’);var is_confirmation = jQuery(this).contents().find(‘#gform_confirmation_wrapper_2’).length > 0;var is_redirect = contents.indexOf(‘gformRedirect(){‘) >= 0;var is_form = form_content.length > 0 && ! is_redirect && ! is_confirmation;var mt = parseInt(jQuery(‘html’).css(‘margin-top’), 10) + parseInt(jQuery(‘body’).css(‘margin-top’), 10) + 100;if(is_form){jQuery(‘#gform_wrapper_2’).html(form_content.html());if(form_content.hasClass(‘gform_validation_error’)){jQuery(‘#gform_wrapper_2’).addClass(‘gform_validation_error’);} else {jQuery(‘#gform_wrapper_2’).removeClass(‘gform_validation_error’);