1. Being Smarter With Our Data
Australian junior exploration floats, 2001–06:
strategy, capital structure and performance
Oliver Kreuzer, Mike Etheridge &Pietro Guj
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. 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. 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. 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. 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
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. Area under Tenement
100
89
Number of Companies
80
65
60
40
20 14
11
0
Size (km2)
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. 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. 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. 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. 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%)
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. 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. 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. 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. 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