Focus on Africa’s junior miners in June

Junior Mining Indaba to stimulate sector by dealing with funding challenges.

June will see mining lightweights and middleweights put in the spotlight as the inaugural Junior Mining Indaba is held in Johannesburg. The event, held by investment conference organiser Resources 4 Africa, seeks to address the challenges faced by exploration companies and junior miners, not least of which are the access to funding, crippling legislation and administrative costs.

From June 3-4, companies will be able to showcase their assets in an attempt to draw investors, who can gain free access as an incentive to attend. Investors will get the opportunity to see how companies throughout the African continent – from an array of commodity sectors – are performing.

“It is the junior sector that can unlock the potential of the minerals under the ground,” says Bernard Swanepoel, chairperson of the annual Joburg Indaba event. “But this sector of the industry has not been properly organised and represented. I do not believe there has been a tax regime that is sufficiently investor friendly to encourage inflows of the high risk dollars that are required for exploration.”

Cash strapped

AlphaWealth fund manager Keith McLachlan says junior miners are primarily bottlenecked by financing because their size, combined with the plight of the South Africa’s mining landscape, means they have a risk profile that banks are not willing to finance.

“It’s not to say that they do not have valuable assets, but they tend to struggle in terms of cash reserves,” says McLachlan.

It’s a point that is echoed Ido Lekota, director of exploration company Lerama Resources, who says the current environment is particularly challenging for exploration companies, because Greenfield projects often do meet bankable feasibility standards of money lenders and investors.

Says Lekota: “There isn’t any funding available for these kind of projects. The Industrial Development Corporation (IDC) does provide some funding to small projects but it also turns many applications down if they are unable to meet a certain level of feasibility. There are options, like the Anglo Khula Fund, which we are funded by, but all that money goes into the ground via the actual exploration activities. We still have to pay salaries and run an office, so it’s very challenging. But this Junior Indaba sounds fantastic because it will allow us to engage with potential investors.”

The Junior Indaba will also be taking a much closer look at how international mining economies have created thriving junior sectors, with debates and forums that will dissect the reasons for Africa not getting more of the global exploration spend.

Legislation killing juniors

Cadiz Corporate Solutions’ mining specialist Peter Major says it’s because legislation, poor administration and irresponsible unions in South Africa that smaller players are suffocating in the mining industry.

“This must be the most difficult country to be a junior miner, because almost everything we do in South Africa’s legislation has, in essence, worked much more against the smaller players than the larger Anglo American and similar large mining companies,” say Major.

He adds: “The whole legislative and administrative environment here in SA is so elaborate, cumbersome and prescriptive that the little guy has no way of complying with it before he goes broke. You need to have millions on your balance sheet to be able to meet layers upon layers of administrative, labour, BEE, environmental and many other commitments.”

He explains that this is probably one of the most toxic environments out of the top 100 mining countries to try to build a mine and earn a return on your mining investment. “Until recently it was possible to get a prospecting license, in some Canadian provinces, within a day.”

But Major has been encouraged nonetheless by the initiative to create a special event to address these concerns, saying that, even though there is not much of a junior mining sector in South Africa, the forum will provide an ideal opportunity to figure out why that is the case and what can be done about it.

The Junior Indaba’s lead sponsor is the MSA Group, whose managing director, Keith Scott, is adamant that Africa’s exceptional mineral endowment will count for little if large tracts on the continent continue to go unexplored.

“Economic and political development in sub-Saharan Africa is opening up new opportunities for exploration and mining.  It’s vital that we understand and share what is needed to foster exploration, so we can develop a framework to best promote investment and stimulate the junior mining sector, and therefore create a better environment for new entrants,” Scott  says.

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