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Australian junior exploration floats, 2001–06:
strategy, capital structure and performance
Oliver Kreuzer, Mike Etheridge & Pietro Guj
Being Smarter With Our Data
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
Scope of Study
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
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)
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
Methodology
Number of Floats by Financial Year (FY)
FY 1993-94
FY 1994-95
FY 1995-96
FY 1996-97
FY 1997-98
FY 1998-99
FY 1999-00
FY 2000-01
FY 2001-02
FY 2002-03
FY 2003-04
FY 2004-05
FY 2005-06
FY 2006-07
FY 2007-08
0
20
40
60
80
100
120
140
93 5 6
1 2 210
15 16
50
39
59
118
86
Financial Year
Num
ber
Scope of this study
Onset of the commodity price boom
GoldNick
el
Base Metals
Uranium
Platinum
DiamondsSilv
erOther
Iron
0
20
40
60
80
100
120
140
160
141
55 55
29 26
12 11 9 7
Commodity
Num
ber o
f Com
pani
es
Target Commodities
Number of Projects
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 190
5
10
15
20
25
30
22
14
23
26
21
19
15
8 8
6
3 3
6
1 12
1
Number of Projects
Num
ber o
f Com
pani
es
Area under Tenement
1-100
101-1,000
1,001-10,000
>10,000
0
20
40
60
80
100
11
65
89
14
Size (km2)
Nu
mb
er o
f C
om
pan
ies
Exploration Stage
B C D E0
10
20
30
40
50
60
70
80
90
Exploration Stage (after Lord et al., 2001)
Num
ber o
f Pro
ject
s Reconnaissance
Systemati
c Drill Testi
ng
Resource Delineati
on
(Pre-) Feasibility
Preferred Target Commodities
By FY and as a percentage of the total number of target commodities
2001-02 2002-03 2003-04 2004-05 2005-06
Gold 0.451612903225807
0.750000000000001
0.569620253164558
0.34375 0.346938775510205
Base Metals
0.161290322580645
0.0833333333333333
0.113924050632911
0.145833333333334
0.197278911564626
Uranium 0 0 0 0.0520833333333334
0.163265306122449
Nickel 0.129032258064516
0.0833333333333333
0.20253164556962
0.15625 0.122448979591837
Platinum 0.193548387096774
0.0416666666666667
0.0632911392405063
0.0416666666666667
0.0680272108843538
Other Commod-ities
0 0 0.0126582278481013
0.125 0.0272108843537415
Silver 0 0.0416666666666667
0 0.0520833333333334
0.0340136054421769
Iron 0 0 0 0.03125 0.0272108843537415
Diamonds 0.0645161290322581
0 0.0379746835443038
0.0520833333333334
0.0136054421768707
5%
25%
45%
65%
85%
Rati
o
Preferred Exploration Destinations
By FY and as a percentage of the total number of projects
2001-02 2002-03 2003-04 2004-05 2005-06
WA 0.543209876543211
0.709302325581395
0.575107296137339
0.384615384615385
0.436950146627566
SA 0.222222222222222
0.0232558139534884
0.0429184549356224
0.113122171945702
0.131964809384164
Overseas 0.135802469135802
0.0116279069767442
0.150214592274678
0.171945701357466
0.129032258064516
QLD 0.0246913580246914
0.116279069767442
0.0686695278969957
0.18552036199095
0.102639296187683
NSW 0.0123456790123457
0.0930232558139535
0.0772532188841202
0.0361990950226245
0.0762463343108504
NT 0.0123456790123457
0.0232558139534884
0.0729613733905579
0.0542986425339367
0.0674486803519062
VIC 0.0493827160493828
0 0.00858369098712448
0.0361990950226245
0.0322580645161291
TAS 0 0.0232558139534884
0.00429184549356224
0.0180995475113122
0.0234604105571847
5%15%25%35%45%55%65%75%85%95%
Rati
o
Capital Raising
2001/2002
2002/2003
2003/2004
2004/2005
2005/2006
$0
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
$300,000,000
Financial Year
Tota
l Rai
sed
Capi
tal
Financial Year
All Floats Junior Explorers
Raised Capital Raised Capital Median Capital Raising
Percentage of All 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 Raising
Capital raisings of junior explorers are insignificant despite their relatively substantialproportion of the total number of floats (in the range of 9% to 33%)
Capital Raising
2001-02
2002-03
2003-04
2004-05
2005-06$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
Financial Year
Rais
ed C
apita
l
Stock Market Performance
‘Jump-Faller’ ‘Jump-Riser’
‘Faller’‘Index-Hugger’
S&P/ASX 200 Materials Index
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
Stock Market Performance
*Based on 169 of the 179 juniors**Based on 114 of the 179 juniors
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
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
Stock Market Performance
Transitions from Explorer to Miner
These figures do not account for successes realised from project sales!
Tim
efra
me
= 5
Year
s
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
The “typical” Junior Exploration Float
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