Cash runway and capital raisings: why great drill hits often meet a placement

Cash runway is how long an explorer can keep operating before it needs more money, usually measured in quarters from its Appendix 5B. Because most explorers have no revenue, they fund drilling by issuing new shares, and a company with a strong drill result and only a couple of quarters of cash will often raise capital soon after, typically at a discount to the market price.

Runway in one line

Item 8.7 of the Appendix 5B does this calculation for you using the latest quarter's spending, and if it is below 2 the company must explain how it will fund itself. The Appendix 5B guide walks through each line. DrillScore's cash runway page lists explorers by quarters of funding, and the cash runway calculator lets you test different spending rates.

As a rough reading: under 2 quarters means a raise or other funding is very likely soon; 2 to 4 quarters means the company probably has one more meaningful program before it needs money; over 4 quarters gives room to drill without immediate pressure. These are general observations, not rules.

Why a great hit and a short runway often lead to a placement

Directors of an explorer with limited cash have an obvious incentive to raise money when the share price and investor interest are high, and a strong drill result is often when both peak. Raising after good news means issuing fewer shares for the same dollars. From the company's point of view, that is sensible capital management.

For existing shareholders, the effect is mixed. The company is funded, but new shares are issued, often at a discount and sometimes with free options. It is common to see an announcement of results, a trading halt "pending a capital raising" within days, and then a placement priced below the post-result trading price. Sometimes the results and the raising are announced together.

This pattern is one reason great drill hits sometimes do not hold their share price gains. See how share prices react to drill results.

The main ways explorers raise money

Placement capacity

Under ASX Listing Rule 7.1, a company can generally issue up to 15% of its share capital in a 12-month period without shareholder approval. Eligible smaller companies can seek approval at their AGM for an additional 10% under Listing Rule 7.1A, with the issue price under 7.1A restricted to a discount of no more than 25% to the recent volume-weighted average price. Larger placements need shareholder approval, often sought at a general meeting after a first tranche is issued under existing capacity.

Dilution maths: a worked example

A hypothetical explorer has 400 million shares, last traded at 12 cents (market capitalisation A$48 million). It raises A$6 million by placement:

• 60 million new shares at 10 cents, a 16.7% discount to the last close.
• One free attaching option for every two placement shares: 30 million options, exercisable at 15 cents.
• 5 million options to the lead manager.
• Broker fees of 6% (A$360,000), leaving about A$5.64 million.

Dilution is not automatically bad. If A$5.64 million of drilling turns a prospect into a deposit, a smaller share of a more valuable company can be worth more. The question is whether the money buys more value than the ownership it costs. The discount matters too: issuing at 10 cents rather than 12 means 20% more shares for the same dollars.

Dilution over time

A single raise is easy to absorb. The cumulative effect over years is what matters. Suppose an explorer had 200 million shares and a 500,000oz resource three years ago, and now has 650 million shares and a 1.0Moz resource.

• Then: 500,000 ÷ 200m = 2.5oz per 1,000 shares
• Now: 1,000,000 ÷ 650m = 1.54oz per 1,000 shares

The resource doubled, but each share's claim on it fell by about 38%. DrillScore shows each company's dilution history, the change in shares on issue over time, on its company pages (for example, ASX gold stocks and copper stocks).

Options and performance rights

Options give the holder the right to buy shares at a set price before an expiry date. Free attaching options in placements reward new investors and can bring in more cash later, but they add to the fully diluted share count and can cap the share price near the exercise price as holders exercise and sell. Performance rights are usually issued to directors and staff and convert into shares if hurdles are met, such as a share price target or a resource milestone. Both appear in the company's issued capital notices; add them up to get the fully diluted count.

The 2026 funding environment

According to BDO's Explorer Quarterly Cash Update for the June 2026 quarter, the number of Appendix 5B reports lodged fell to 746, continuing a decline that began in mid-2024. BDO reported that financing inflows fell about 10% over the quarter to A$2.85 billion, while sector cash held near a record A$13.04 billion, with capital and activity increasingly concentrated among the larger explorers: the top 50 by market capitalisation held 52% of sector cash.

For smaller explorers that means the funding market is selective. Advanced projects and companies with strong results can raise; companies with short runway and little news may struggle, face deeper discounts, or consolidate. Gold dominated exploration spending in BDO's figures, consistent with strong gold prices over the past two years. These conditions change, so check BDO's latest update for current figures.

What to check when an explorer raises

1. Size of the raise relative to market capitalisation.
2. Discount to the last close and to the 5- or 15-day VWAP.
3. Attaching options: ratio, exercise price, expiry.
4. Fees and broker options.
5. Whether existing holders can participate through an SPP or entitlement offer.
6. Use of funds and how many quarters of runway it buys.
7. Director participation: are insiders buying in at the same price?

This guide is general information about how raisings work; it is not advice on whether to participate in any offer.

The short version

• Runway = (cash + unused facilities) ÷ quarterly burn; item 8.7 of the 5B does it for you.
• A strong hit plus a short runway often precedes a discounted placement.
• Placements are fast but exclude most retail holders; SPPs (capped at A$30,000) and entitlement offers let existing holders take part.
• Count options and performance rights to see the fully diluted share count.
• BDO counted 746 explorer 5Bs in the June 2026 quarter, with capital concentrating in larger, advanced explorers.