Australian junior exploration floats, 2001-06, and their implications for IPOs

An analysis of 179 junior exploration floats, listed on the Australian Securities Exchange (ASX) between July 2001 and June 2006, helped to build a basic understanding of the strategy and business structure of these companies. The "typical" junior explorer raised A$4 million at initial public offering (IPO) to finance a 2-year, mainly greenfields exploration program. The capital raised at IPO entitled its investors to approximately half of the company, with the balance in the hands of the promoters, vendors and/or seed capital investors. Of the A$4 million raised at IPO, it intended to spend approximately two-thirds on exploration, while the remainder was absorbed in corporate overheads and the costs of the IPO. Once these were paid, ongoing corporate overheads averaged approximately 28% of its total operational expenditure. However, given an average total annual expenditure of approximately A$2.6 million, most juniors held insufficient capital reserves to meet operational costs beyond a time frame of 2 years. As at October 2006, 9% of the companies were in the process of mine construction, whereas 6% had made it to producer status. The lead time from listing to production ranged from 1.5 to 53 months, giving a median of 28 months.