One of the largest hurdles for any explorer or junior mining company developing a project in South Africa is the ability to raise finance, because, simply put, traditional investors are risk-off to most early stage developments, leaving many juniors competing for the same limited pool of available capital.
With extremely lucrative stock exchanges for junior miners, such as the Toronto Stock Exchange and Australian Stock Exchange, should South African juniors consider listing on the Johannesburg Stock Exchange (JSE) – despite a much smaller number of junior mining and exploration companies currently listed on the local exchange?
During a Minerals Council South Africa webinar on raising finance and listing junior mining companies on the JSE, ASX and JSE-listed Orion Minerals MD and CEO Errol Smart, who also chairs the Junior and Emerging Miners Leadership Forum within the Minerals Council South Africa, said that while investing in stocks is common place in countries such as Australia where individuals are allowed to manage their own investment portfolios and pension funds, the same is not true in South Africa where individuals are, by law, required to use authorised financial service providers or advisors when making high risk investment decisions.
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Moreover, in Australia and Canada (the large junior mining stock exchanges) there is a pool of investors ready to risk their money and there are tax incentives that draw individuals into investing in these mining jurisdictions. In South Africa however, junior mining investment is a “dead sector” of investment, says Smart.
Smart advises juniors to be aware of the constraints of listing a junior mining company on the JSE, such as the level or responsibility, transparency and governance requirements. As such, he points out that listing is not a universal panacea for junior mining companies but is a very viable way for some to raise money, as was the case for Orion Minerals.
While most of Orion Minerals’ capital still comes from offshore jurisdictions, which it raises via its ASX listing, 22% of the company’s shares are listed on the JSE. On this stock exchange, Orion has 3 500 individual shareholders within its registry, most of which are black South Africans that have actively chosen to invest in the company. “The JSE listing has created the opportunity for ordinary South Africans to become shareholders in our company, which is truly unique,” says Smart.
Moderating the webinar was Grant Mitchell, head of the Junior and Emerging Miners’ Desk within the Minerals Council, which aims to provide advice and support, and to act as a resource centre for smaller Minerals Council member companies by supporting junior and emerging mining through policy lobbying and providing advice. Its purpose is to also link junior and emerging miners to networks, providing mentorship and disseminating relevant policy information.
Mitchell noted the need for an investor environment in South Africa that actively encourages exploration and welcomes the risk-takers and investors that have the vision to discover new deposits, whether big or small, and fund these during the most at-risk stages of development. Compared to Australia, with approximately 700 listed juniors and Canada with approximately 1 200 listed juniors, there are only 10 listed junior mining companies on the JSE.
In a bid to overcome the challenges currently disincentivising investment into the South African junior mining sector, one of the projects being worked on by the Desk is the development of an incentive scheme for the junior mining sector in South Africa. Currently in draft format, the Desk aims to create a formal document that can be taken to government as a motivation to introduce tax incentives.
Should South Africa manage to implement the many reforms required to boost its junior mining sector, Patrycja Kula-Verster, primary markets business development manager within the equities department at the JSE believes that more listings on the JSE will be likely.