Junior miners ruined funding prospects during the boom

Money wasn’t put to good use when it was readily available.

The last resources boom covered up the frailties of South Africa’s junior mining and exploration sector. This was a recurring theme at the inaugural Junior Mining Indaba held at Turbine Hall in Newton, Johannesburg, on Wednesday.

Keith Scott, managing director of The MSA Group, said that as a result of the peak of the commodities cycle, which saw commodity prices rising rapidly, the market turned a blind eye to the quality of the project and the quality of management.

Sacha Backes, senior investment officer of the IFC, the private investment arm of the World Bank, said that as a result attitudes towards new projects have changed and are perceived as being much more risky. This has led to less funding being made available for greenfield projects.

Said Backes: “In 2007/08 you could raise money for projects, the funding for which should not have been approved…The subsequent failures of those initiatives have contributed significantly to the current apprehension towards the junior mining industry.”

It is one of the reasons why equity from public markets has dried up for exploration companies. But it’s not only South Africa that has been impacted. The slump in commodity prices has impacted the entire mining industry, and this is felt even more so in the juniors.

Otsile Matlou, director of ENS Africa, said there were only 17 mining IPOs in 2014 worldwide, and that this was a 94% drop compared to the pre-global financial crisis peak.

Global exploration funding from 2007 – 2014

juniors

What to do

Nevertheless, not all doors are closed to junior miners. The development of future mines depends on exploration and thus there will always be a need for it. That said, there is a growing number of emerging mining countries on the African continent, and South Africa needs to position itself as being the better alternative.

Chamber of Mines president Mike Teke said there was a need to bring everyone together – the identified potential black industrialists, the financiers (including the Industrial Development Corporation and the private banking sector) and the regulators – and ‘lock them in a room’ until a resolution is made to grow the junior mining sector.

But it is incumbent on the junior miners and exploration companies to ensure that they adapt to the times, and understand that they need to make a compelling investment case to receive funding.

Although the nature of early-stage mining is a risky business, there are some boxes that need to be checked.

Alugumi Dzebu, the senior investment manager of partnership funds at Anglo American, is involved in funding Greenfield projects, providing an average of R15 million per project, but said that people had to have a vested interest in their own project, i.e. their own money.

Said Dzebu: “There is also a certain level of technical competency that is required as that speaks to the implementation aspect of the project…. And don’t ignore your communities. There have been projects in the past where we came across some troubles because community members of a particular region were against the project.”

Backes said the quality of management team, and its track record, was of the utmost importance. He said companies that came to them, not because they were desperate for funds, but to explore the potential of there being a mutually beneficial relationship, stood a better chance.

Also important was timing. It is not always best to go into the region, or the commodity that is performing best at at a particular time.

“Juniors make mistakes when they go into markets because of a boom, or going into the right commodity and the wrong time,” said Tony Harwood, CEO of Montero Mining.

VIDEOS

COMMENTS   0

You must be signed in and an Insider Gold subscriber to comment.

SUBSCRIBE NOW SIGN IN

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
BTC / USD

Podcasts

INSIDER SUBSCRIPTION APP VIDEOS RADIO / LISTEN LIVE SHOP OFFERS WEBINARS NEWSLETTERS TRENDING

Follow us:

Search Articles:
Click a Company: