Investment

The junior mining sector in Africa holds the biggest key to unlocking long-term sustainability in the industry yet, the ability to develop new projects on the continent is becoming increasingly difficult  with hundreds of companies trying to access a shrinking pool of funding and investment opportunities.

So how can juniors become more investible asks GERARD PETER

The topic was discussed in great depth during a webinar hosted by Mining Review Africa late last year. Moderated by editor-in-chief, Laura Cornish, the panel featured three notable experts in the juniors field – Errol Smart, CEO: Orion Minerals, Grant Mitchell, head of the Junior and Emerging Miners’ Desk: Minerals Council South Africa and Olebogeng Sentsho: Simba Mgodi Fund.

This article first appeared in Mining Review Africa Issue 2, 2020

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The main topic of discussion centred on the challenges in unlocking traditional funding options for the junior mining sector and how to overcome these.

According to Mitchell, the most important thing is that a country creates a regulatory environment which is conducive to investing in junior mining companies.

“Take, South Africa for example,” he states. “In this country, the regulatory environment is primarily targeted at large mining companies. The junior sector is growing, however, the regulatory environment doesn’t really support them.”

As such, Mitchell recommends that there needs to be some sort of relief for juniors in the form of a separate Code of Practice for smaller mining companies. In addition, he advises that governments offer tax incentives to these company to create a larger appetite for investment in a country.

Meanwhile, Smart opines that good projects will always get good finance, and it’s not only about government regulatory policy or tax incentives. “At last year’s Africa Down Under conference in Australia, the stats showed Australian companies have substantial mining interest on the African continent,” he explains.

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“We should stop hiding behind excuses about why investment is not happening. At the end of the day, there is a shrinking pool of capital internationally and only the best projects get money. Traditionally, junior mining investment in Africa has come from Australia and Canada, where access to capital is limited these days.”

Smart succinctly states that juniors should not ‘fall in love’ with their projects. Rather they must be realistic and be prepared to back the best ones. “Sitting back and saying there is no money is simply not true. It’s a competitive world out there so juniors have to work hard to secure funding.”

Go big or go home

Weighing on the topic of juniors making themselves more investible, Sentsho says that there are five key factors that juniors should take into account. “Firstly, look at the commodity you are mining; is there a demand for it or is it a mineral that is in decline?” she advises.

“Secondly, put together a detailed financial model that will make sense to investors. Thirdly, put together a proper prospectus that goes all the way through the value chain. An investor needs to be confident that you have a well-thought out business model, from exploration through to final productivity.”

Fourthly, Sentho advises that juniors should also do the research into who they want to seek international investment from. Investors from different countries, she says, have specific requirements that they look at in order to protect their investments. Therefore, it is important to know what their objectives are in order to attract their interest such as regions and countries they prefer to invest their money and what they look for in a company’s leadership team.

Lastly, she says, juniors should aim big. “A lot of juniors prefer not to be listed companies. This says to the investors that you are a subsistence miner with no ambition to grow your operation. You just want to mine marginally so that you can make your money and get out.

“The projects that stay in the minds of investors are those with the biggest dreams; it’s those companies who have a well-thought out business model and financial plan to take their company all the way up to listing.”

Alternative funding options

While traditional funding sources are drying up for juniors, new cash resources could be found in alternative funding methods. According to Sentsho, with the advent of 4IR and the Industrial Internet of Things, technology is set to player a major role in mining. “As such, juniors should use technology platforms such as crowdfunding and blockchain to fund their projects.”

With traditional funding channels lowering their risk appetite for exploration in Africa, there are no doubt a number of hurdles to overcome – financial and regulatory. And while these will be difficult to overcome, it is not impossible for juniors in Africa to attract investment.