Ju­nior min­ers strug­gle to grad­u­ate The cur­rent eco­nomic and leg­isla­tive cli­mate is hard for the big min­ing com­pa­nies, and near im­pos­si­ble for the smaller ones.

Finweek English Edition - - THE WEEK - Ed­i­to­rial@fin­week.co.za

spare a thought for the ju­nior min­ing com­pa­nies. If it’s hard for large min­ing firms to at­tract in­vest­ment and raise cap­i­tal, then you can bet it’s dou­bly worse for the ju­niors, the in­trepid en­trepreneurs who are of­ten the lifeblood of to­mor­row’s min­er­als and met­als sup­ply.

In SA, it’s es­pe­cially dif­fi­cult for ju­nior min­ers to gain trac­tion. This is ow­ing to the evap­o­ra­tion of con­fi­dence in the coun­try’s reg­u­la­tory frame­work, ac­cord­ing to bankers, an­a­lysts and ju­nior min­ing ex­ec­u­tives. A quick look at the JSE tells its own story. There are hardly any ex­plo­ration plays and very few small ju­nior min­ers to shake a stick at: Bauba Plat­inum, Miranda Min­er­als, Tawana Min­er­als, Fire­stone, ZCI... But with all due re­spect, there’s noth­ing here to set the world alight; not yet.

Speak­ing at the Ju­nior Ind­aba, a con­fer­ence held in Jo­han­nes­burg ear­lier this month, Jo­han Dip­pe­naar, CEO of Pe­tra Di­a­monds, said that a lack of flex­i­bil­ity in ap­pli­ca­tion of reg­u­la­tions would make it im­pos­si­ble to­day to build a com­pany in the same way that he had con­structed his firm.

Pe­tra’s rise to promi­nence from a di­a­mond industry hope­ful was based on buy­ing the age­ing di­a­mond mines of De Beers, but it was a strat­egy that re­quired the abil­ity to be­have en­trepreneuri­ally.

“It would be very dif­fi­cult to have ju­nior min­ers like ours given the cur­rent reg­u­la­tions. The in­flex­i­ble ap­proach of labour unions is an­other prob­lem,” he said.

Mar­ket cycli­cal­ity is one thing, but leg­isla­tive in­sta­bil­ity dis­turbs the cy­cle and means in­vestors will aban­don a min­ing district, said Chris Hart, an econ­o­mist.

“If you don’t have line of sight in terms of pol­icy, you have prob­lems,” said Hart. “We haven’t looked after in­vestors and they won’t want to carry us through the down­times.

“They see it as an or­phan to be dis­carded. We need to ap­pre­ci­ate that when the en­vi­ron­ment is not sta­ble – such as when we get a down­grade – it doesn’t end there. It will be fol­lowed by more [down­grades] and we could end up at the IMF,” he said.

“Then we are not op­er­at­ing in a cycli­cal en­vi­ron­ment.”

The reg­u­la­tory un­cer­tainty in SA min­ing re­lates to changes in black eco­nomic em­pow­er­ment tar­gets. The 2003 Min­ing Char­ter has been mod­i­fied twice and a third was gazetted in April, set­ting down fresh tar­gets. But it’s not only the busi­ness cli­mate. Im­pru­dent plan­ning and spend­ing by min­ing in gen­eral, as well as specif­i­cally in the ju­nior sec­tor, has killed off a lot of the re­tail in­vest­ment in the sec­tor. “Ju­nior fi­nanciers, such as the ar­che­typal re­tired Cana­dian den­tist who has kept in­vest­ing through in­cen­tivised flow-through funds, or the self-em­ployed Aus­tralian...they have been de­stroyed by in­vest­ing in ju­nior min­ers,” said Paul Miller, a re­sources banker with Ned­bank Cap­i­tal. “We have lost the pub­lic in­vestors and they won’t come back again,” he added. The new in­vestors in the sec­tor are largely pri­vate eq­uity, he said. If de­vel­op­ers want to ac­cess pri­vate in­vest­ment they ei­ther have to be “in a good ju­ris­dic­tion, have a rock star ge­ol­o­gist, or have made money for in­vestors in the past. If you can’t tick one of those boxes, there isn’t money for you,” said Miller. Luck­ily it’s not all doom and gloom. Rob Still, a long-stand­ing min­eral ex­plo­ration and mine de­vel­op­ment in­vestor, said there are cer­tain ca­st­iron rules that are worth fol­low­ing and that ap­ply in any given reg­u­la­tory en­vi­ron­ment for ju­nior min­ers want­ing to at­tract cap­i­tal and in­vestors. “Go for a high-grade de­posit,” he said, adding that a high-qual­ity min­eral re­source “for­gives a lot of sins” that the en­tre­pre­neur may com­mit, or the in­vestor over­look. He also guides in­vestors “not to sweat the small stuff”. In­vest­ing in min­eral de­posits means tar­get­ing known and large min­eral sys­tems. “If you’re go­ing to be in ex­plo­ration, you need to know how the sys­tem is formed. Don’t get in­volved if you don’t un­der­stand the ore­body,” he said. “Keep your fail­ures small and your suc­cesses large. If some­thing is not work­ing for you, get out quickly and cut all strings,” said Still. He also rec­om­mends a de­gree of philo­soph­i­cal think­ing about the chances of suc­cess. The sober­ing fact is that on av­er­age it’s the sev­enth owner of a cer­tain project or min­eral de­posit that ac­tu­ally brings a project into pro­duc­tion.

“We have lost the pub­lic in­vestors and they won’t come back again.” “Keep your fail­ures small and your suc­cesses large. If some­thing is not work­ing for you, get out quickly and cut all strings.”

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Jo­han Dip­pe­naar CEO of Pe­tra Di­a­monds

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