2019 is a seminal year for investor confidence in South Africa’s mining sector.
International investors will be closely watching a variety of important issues as they seek the clarity they will need to commit to junior mining investments in the country.
This article first appeared in Mining Review Africa Issue 3, 2019
These were the salient points that were discussed at recent new generation mining panel.
AUTHOR: Richard Damant: Analyst: Corporate Finance, Nedbank CIB
Held on the sidelines of the Investing in African Mining Indaba in February, the Nedbank CIB New Generation Mining Panel brought to the fore the key regulatory, economic and political challenges facing junior mining in South Africa.
With crucial national elections due in May, a debt crisis at state electricity utility Eskom and the country’s new mining charter still pending finalisation, Hulme Scholes, a partner at law firm Malan Scholes, said the need for accountability and transparency in the fight against corruption was critical if international investors were to commit to the country and continue unlocking its vast geological potential.
Scholes shared the platform with CEOs of five of the fastest growing junior mining companies operating in southern Africa. Three South African producers – Bushveld Minerals’ Fortune Mojapelo, Orion Minerals’ Errol Smart and DRDGold’s Niel Pretorius – were joined by Alphamin CEO Boris Kamstra (Democratic Republic of Congo) and, MOD Resources Julian Hanna (Botswana).
Scholes said a recent investment roadshow to Australia revealed the key issues that foreign investors are focused on ahead of the elections before considering to commit capital to South Africa.
“Investors are cautiously optimistic about the outlook for mining in the country. But we did have questions on Expropriation Without Compensation (EWC), and the state capture enquiry.
This was an indicator that they only see our democracy as functioning if those found guilty of corruption are locked up, and will not invest if there is no accountability.”
Scholes also noted that it was important that the EWC debate commenced only after the election.
“We need firm policy decisions, because the uncertainty around policy is causing jitters.”
He emphasised that continuity within the Department of Mineral Resources was also critical for junior miners to succeed.
“We need President Cyril Ramaphosa to leave the mining minister Gwede Mantashe there. He can contribute a massive amount because he knows the industry.”
The latest iteration of South Africa’s Mining Charter, which aims to increase investor certainty around mining and distributing the wealth the industry creates more equitably, was released in October 2018 and is currently being reviewed by the Minerals Council South Africa.
Mantashe’s draft follows an earlier version released by former mining Minister Mosebenzi Zwane which saw a robust legal response from the industry, with Scholes leading the legal challenge.
Scholes said that the trust deficit between industry and the SA government hit a low with Zwane in 2017, and the charter released that year was a disaster.
“Talks broke down completely and the industry did not engage in talks with government for three months. Under Mantashe, this trust deficit has improved significantly.”
The need for local investors
Of course, power constraints and the indebtedness of Eskom also emerged as key themes during the discussion.
DRDGold’s Niel Pretorius said that Eskom is a major risk to South Africa’s mining industry.
“It is critical that we have a stable Eskom from a supply and pricing perspective,” he stated.
The panel also discussed the state of funding for junior mining. According to Bushveld Minerals’ Fortune Mojapelo, attracting South African money for mining investment is important.
He mentioned that South African investors’ understanding of the country’s geology, risks and vast potential mean that it was essential that mining projects are funded with capital raised in the country, rather than from foreign capital markets such as London.
Meanwhile, Boris Kamstra of Alphamin said it was important not to get paralysed by issues.
He added that the only answer to unlocking the region’s potential was building roads and other infrastructure that would improve access and economic opportunity.
About the author:
Damant has wide range of experience in the financial services sector through his rotations in Nedbank’s Corporate Finance and Special Finance teams.
During his time in Corporate Finance, Damant’s key experience includes advising on Wescoal’s acquisition of Keaton Energy, the R2,5 billion placement of MS333’s Exarro shares and the inward dual listing of Alphamin Resources. He has also worked on a number of leveraged finance transactions during his time in specialised finance.
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