There's Some 'Risk Money' Filtering Back Onto The ASX

Photo: David McNew / Getty Images.

Junior miner Apollo Minerals is one of the few ASX listed explorers to complete a capital raising this year.

The company successfully raised $2.2 million last week, a small amount but enough to keep the copper, gold and iron ore explorer afloat for the time being.

“We don’t have any development assets so it’s obviously been particularly tough for those sorts of companies in recent times,” Apollo CEO Dominic Tisdell told Business Insider.

What the company noticed after its recent capital raising is there is some “risk money” entering the market after two horror years for some junior miners who experienced funding dry up.

“It’s coming from traditional channels, so brokers in Australia and in particular their high-net worth clients,” he said.

Commodity prices have dropped off this year. Tisdell said prices have “stabilised” and that’s why investors are beginning to come back but there’s still only a small amount of equity funding around.

“In this market investors are becoming particularly choosy about which commodities or projects they’re investing in,” Tisdell said, adding “iron ore has lost a lot of love of late.”

“The hole in the market is still equity,” he said. “It’s still very patchy and very selective.”

He said juniors will need to look at different ways of funding projects and exploration efforts, including taking on joint venture partners in the future.

“The equity market, particularly in Australia, but also internationally for resources stocks, has been particularly difficult. It makes sense also to try and tie up with companies that have got an interest in developing a project or ultimately take the product from a project,” he said.

“In the last six months we’ve attracted two major joint venture partners.”

As the boss of an explorer, Tisdell has noticed an increase in reverse takeover transactions on the ASX this year and said companies with more complicated projects will be prone to the deals.

“It’s a squeeze on capital, a squeeze on funds and particularly for projects that have been around a while or have extra difficulties to realise some value for shareholders,” he said. “I think they’re the sorts of projects or companies, in the first instance, that will be prone to reverse takeovers.”

Apollo was approached for a reverse takeover of sorts about 12 months ago. Indian company Jindal Steel and Power went after the company for a demerger deal to secure its iron ore rights in South Australia. But separating Apollo’s copper, gold and iron ore exploration interests proved too “complicated”, Tisdell said.

He said the trend of broken down listed mining companies striking backdoor listing deals with tech companies is a white flag.

“It’s the last resort, it’s a matter of survival,” he said.

“We saw the same thing back in the late 90s, early 2000s in the tech boom back then as well. Again a downturn in the resources sector, a lot of companies struggling.

“There were guys who needed an ASX listing with a shareholder base.

“It made sense for the two of them to join forces and that’s what we’re seeing now.”

But Tisdell said he isn’t worried about the trend. It’s all part of the mining sector’s cycle.

“As a matter of survival it’s just common sense really that they should find a company or a project that has a good prospect and join teams,” he said, adding there are a lot of parallels between tech startups and mining juniors. Both are trying to develop a product, firm up a market and sell an idea.

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