Johannebsurg - Lesego Platinum's failure to raise R315m is indicative of the grim state of the investment market for mining juniors and has negative implications for other companies needing funds.
Lesego has postponed its listing on the JSE which was supposed to take place on July 31 assuming it had carried out a successful initial public offering (IPO) at a share price between R15.10 and R18.60.
According to an executive from one of the funds approached during the IPO, it seems Lesego offered to cut the placement price by up to 50% but was still unable to attract sufficient backers.
"That's not correct," says Lesego director Mike Scott. "We did investigate whether reducing the price would help the placing but the market simply was not interested.
"The overwhelming message we got was that there was nothing wrong with the project. The problem was the overall negative market sentiment," says Scott.
Lesego CEO Phiway Mbuyazi says, "We were expecting to be challenged over the depth of the project but, amazingly, that did not seem to be an issue."
But the fund executive said some negative sentiment was created because the founding shareholders - Umbono Platinum, which owns 63% of Lesego and Minex, which owns 37% - wanted to sell off some R70m worth of their stakes in addition to the private placing.
He said, "They wanted the funds for investment in another project outside of South Africa. We would like their full attention to be focussed on the Lesego project."
That's denied by Mbuyazi, who said the offer by Umbono and Minex to sell down part of their stakes was linked to a desire to ensure trading liquidity in Lesego shares once listed on the JSE.
He says: "If we had raised the R315m then some 16% to 18% of Lesego would have been in the hands of private investors. The JSE requires that level to be 20% for the listing.
"The founding shareholders agreed they were open to selling down their stakes to improve trading liquidity subject to their combined shareholdings in Lesego not dropping below 57%."
Scott says: "I cannot speak for Umbono on this but Minex was prepared to sell down its stake to meet JSE listing requirements and to meet investor demand if the appetite was there in the market. The appetite was not there."
Mbuyazi denied the shareholders had another specific project in mind for which they needed funds.
"We do have other projects and would have found uses for that money but there was nothing specific at this stage," he said.
Mbuyazi said Lesego would now look to raise between US$5m and $15m from private equity sources to keep the project going over the next 12 to 18 months.
He added that, should market conditions improve during this period, then Lesego would come back to the market looking to raise funds through the IPO.
"We need to keep the momentum up and, specifically, we need to continue with the drilling work required to move our resource from the inferred category to the indicated and measured categories."
Mbuyazi agreed that Lesego would have to reduce its asking price to attract the private equity investment it wanted.
Looking at the rest of the platinum junior sector the most exposed company to current market conditions appears to be Wesizwe Platinum which is searching right now for R5.6bn to fund its proposed mine near Sun City.
But there are a number of other juniors who must face up to the task of raising funds for their projects.
They include, amongst others, Anooraq Resources, Northam Platinum, Platmin, Platinum Australia and Ridge Mining for its proposed Sheba's Ridge nickel/platinum mine.
- Miningmx.com
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