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