When The Cyclical Leg Up For Imdex?

Commodities | May 08 2025

Mining technology company Imdex relies on exploration spending, which appears to have stabilised, but the near-term outlook remains opaque.

-Imdex' March quarter revenues slightly missed forecasts
-Operational activity stabilising nonetheless
-Exploration spending and capital raisings key for the outlook
-Analysts would like more visibility

By Greg Peel

Imdex ((IMD)) provides technology that improves the process of identifying and extracting mineral resources to achieve increased accuracy, enhanced speed, and productivity gains. The company is the dominant global leader in its field, with a presence in 40 countries including all major mining regions.

Key to Imdex' outlook are the exploration spending intentions of resources companies as well as capital raisings in the space, implying new exploration intentions.

This week, Imdex reported March quarter revenue of $100m, in line with the December quarter and -1% down year on year, slightly below consensus expectations. This explains why the initial share price response has been to the downside.

Morgans had envisaged the business to deliver flattish revenue in March from December in constant currency terms, but with a $4m revenue tailwind from FX. The FX impact was only $1.5m as the sensitivity was overstated and other currencies proved a drag (such as the rand and peso).

This indicates to Morgans the base business is still going backwards ever so slightly.

Management's outlook commentary with the March quarter update was cautiously optimistic. Resource companies have reported increased exploration budgets for 2025, although there was limited deployment in the March quarter.

"Our key takeaway for the quarter is that the two-plus year decline in global exploration activity appears to have stabilised. Increasingly, we see positive activity combatting the enduring cost pressures, regulatory constraints and political uncertainty".

According to Standard & Poor's, global exploration drilling was plateauing into the March quarter following a decline of -19% in 2024. S&P indicated global exploration budgets for 2025 to be flat to modestly lower than in 2024.

Management noted while resource companies reported increased exploration budgets, there was lower deployment in the March quarter. Activity in Queensland and NSW was abnormally affected by weather in the period, recovering in the June quarter. In West Africa, activity scaled back due to political instability, but this is now being offset by emerging growth in Zambia.

The Americas region has remained steady, underpinned by majors and mid-tier producers, with junior exploration activity remaining subdued.

The Breakdown

Positively, sensor volumes returned to growth in the quarter. Morgans believes the cadence of sensor volumes (down -3% in the first half, up 1% during the March quarter, and up 4% in the interim) is the clearest indication the cycle has reached a positive inflection point.

Conversely, fluids declined again and directional core drilling turned also down slightly. Positively for Morgans, margins in the quarter should be higher than in the first half given the mix effect of higher tool volumes, which are higher margin. Capex in the second half is expected to be up 60% on the first as the company manufactures new OMNI tools (gyros, bolt) and the new ACTx (core orientation).

Capitalised R&D is expected to remain elevated into the second half, which is consistent with previous commentary. However, despite earlier indications this would normalise after the second half, capitalised R&D is now expected to remain elevated through FY26 due to continued requests for Blastdog insights.

Raisings

Data reveals junior equity raisings saw a strong to start 2025, with US$2.0bn raised during the seasonally weak March quarter, up 42% year on year. April saw a further US$758m raised (up 47%). This comes after considerable strength in the December quarter, which saw US$2.7bn raised (up 87%).

Gold financings are making up an increasing proportion of monthly financings, up 38.2% in April versus 33.7% in October. With gold around all-time highs (above US$3000/oz) and copper at healthy levels (US$4.65/lb), the outlook for raisings continues to firm, Morgans notes.

April was nonetheless impacted by Liberation Day-inspired market volatility. Notwithstanding the softer month, Bell Potter continues to expect junior exploration activity to improve from mid-2025, which takes into consideration the typical six-to-nine month indicator lead time.

S&P indicated global exploration budgets for 2025 will be flat to modestly lower, despite many major producers reporting double-digit increases in exploration. Imdex noted downward pressures on exploration remain, being cost, and regulatory and political uncertainty [see: tariffs].

The outlook does have green shoots, Macquarie suggests, with the strong gold price driving an uptick in raising activity, an acceleration of critical minerals projects (of which copper is considered one), as well as the budgets of major and mid-tier miners.

Imdex is highly leveraged to a rebound in global drilling activity levels, Macquarie notes, with early indicators pointing to a stronger FY26.

UBS' base case assumes exploration volumes progressively improve across FY26. This underpins UBS' FY26 revenue growth forecast of 8% year on year. Bell Potter has deferred expectation of a material recovery in Imdex revenue six months to the second half of FY26.

Morgans' view is that, given the sharp rise in junior miner raisings in the December quarter of 2024 (up 87% year on year), exploration activity will gather pace during the second half of 2025.

Also reliant on exploration spending, ALS Ltd ((ALQ)) has seen an uptick in volumes but Morgans expects most of this to be from market share gains, as well as an overweight position in Australia compared to Imdex, which faces intense competition from Axis domestically (and elsewhere).

The broker suspects Imdex is also facing increased competition from smaller private fluids players, but in Morgans' view, a positive cycle, which the broker is becoming increasingly confident around, will trump these company-specific factors.