Building a junior mining sector

It’s a time-honoured quirk in South Africa’s mining sector that exploration for new minerals and metals has been the historic preserve of the mining houses, partly because the endeavour is risky, takes time and requires loyal shareholders.

Now, however, with a fresh boom in minerals demand underway, and in the absence of mining houses – most of which have been dismantled over the past quarter of a century – there’s a shift towards whether SA can finally establish something like a junior mining sector.

Presently, there are few on the ground engaged in real, grassroots exploration. Orion Minerals, which is digging for base metals in the Northern Cape, is financed mostly from Australian money where the company is primarily listed.   

The issue even made Parliament recently. Shadow minister of mineral resources, James Lorimer, laid into the minister of mineral resources, Gwede Mantashe, following his budget vote speech on 15 May, asking why proposed amendments to the Minerals and Petroleum Resources Development Act (MPRDA) didn’t do enough to encourage junior mining. 

“We must focus on junior mining,” said Lorimer. “Regulations should be better designed, and we should look seriously at an MPRDA Lite; this should be vigorously [approved],” he added.  

To be frank, Mantashe has more important fish to fry than junior mining given the urgency around Mining Charter negotiations, but he did acknowledge that one factor affecting new investment in the country’s mining sector was corruption. 

Applications for prospecting licences had been collecting dust since 2010 in some instances, he said. “No satisfactory reason has been advanced as to why we have this backlog,” he said.  

“The word in the corridors is that applications for the known, or those who are paying, are prioritised. We are committed to dealing hard with corruption.”  

Data produced by S&P Global Market Intelligence illustrates the extent of the decline in SA’s exploration sector. 

SA’s share of the African exploration budget has fallen from 35.7% in 2002-2003 to 8.3% in 2017 while budgets set aside for exploration has fallen similarly drastically: down to R87.1m today from R404m in 2007, which broadly approximates to the apex of the commodity 
super cycle.

Paul Miller, a former Nedbank resources banker, now heads up a private equity outfit known as Concentrate Capital Partners (CCP). 

It isn’t focused on exploration investment – which perhaps underpins the riskiness of the sector – but it does want to support brownfield expansion of existing mineral resources.

Backed partly by Stockdale Street, the entity that manages Oppenheimer family money, the aim is to tap into the project pipeline identified by DRA, a large mining engineering consulting company headquartered in Sunninghill, northern Johannesburg. 

DRA is also a backer of CCP, which has been established as a so-called Section 12J entity that essentially allows mining investment to be written off against an investor’s taxable income. 

The entity also has mining industry luminaries in consulting capacities such as Jean Nel, the former CEO of Aquarius Platinum and Tom Borman, a former BHP staffer, but whose entrepreneurial endeavours are well known, such as the original JSE-listed Optimum Coal and Metmar, for instance.

What’s interesting about CCP is its intention to tap finance differently and in such a way that could perhaps be instructive to the exploration sector.

“We intend to raise money through wealth managers from high net worth individuals,” said Miller from his Parktown offices. 

“In that sense, we are competing against specialised unit trusts and hedge funds because we’re selling a financial product into market,” he said.   

The rules of the investment are that backers have to invest for a minimum of five years to permanently benefit from the tax incentive. 

The pool is some 40?000 South Africans estimated to have more than $1m in assets.

“To get the best risk-adjusted return for investors, we are looking at partnering with existing producers to provide them with capital for secondary projects such as tailings retreatment plants, mine dump reprocessing or brownfields plant expansions.   

“The fact of the matter is that this very significant and important industry has been hammered and it’s short of capital,” he said. “If we get R2bn or R3bn under management, we will be very successful.

It’s important that we partner with existing producers with fully permitted projects to avoid the regulatory risk that is so prevalent in the SA mining industry.

We can’t expect our investors to suffer the vagaries of the DMR’s permitting approval process.”

This article originally appeared in the 24 May edition of finweek. Buy and download the magazine here, or sign up for our weekly newsletter here.