February 2017 marked the launch of an exciting new investment opportunity for the South African junior mining sector. Established by
boutique equity fi nance group Jaltech and construction major Stefanutti Stocks, the JSS Empowerment Mining Fund
will not only fill a funding void in this market sector, but will also off er an attractive investment opportunity to investors through extensive risk mitigation and tax benefits. Laura Cornish reports.
The JSS Empowerment Mining Fund is targeting R1 billion through two fundraising windows, the first of which closed in February. It will operate in a unique niche, providing private equity investment of between R30 and R500 million to qualifying South African junior miners. “This will alleviate one of the major challenges the junior mining sector has to contend with – looking for awkward amounts of money that place them in the higher investment risk bracket,” says Gaurav Nair, director of the JSS Fund.
Importantly, the fund will support qualifying South African junior miners both in respect of operational expertise and financial stability. Stefanutti Stocks will provide contract mining and processing services as well as appropriate on-demand guarantees against mining production volumes and processing quality – vastly reducing the operating and financial risks usually associated with junior miners.
To complement this risk mitigation, Jaltech offers financial expertise while third party and fund manager Venture Capital Management Services (VCMS) provides the necessary fund management skills set.
“Junior miners globally often struggle to get affordable funding from financial institutions, particularly given recent depressed commodity prices. This is even more so in South Africa,” says Nair. “This gap has been recognised by the South African government who have sought to address the needs of small to medium business owners to grow their business and contribute positively towards the stimulation of the economy.”
The Fund is one of just 43 entities in South Africa operating under the Section 12(J) of the Income Tax Act (Act 58 of 1962) for venture capitalist companies and will offer investors several benefits:
• Returns in excess of CPI + 10% p.a. on the gross investment amount and when the tax deduction is considered, this translates to considerably higher returns on the net investment;
• A 100% deduction from an investor’s taxable income in the year of their investment;
• and On-going recognition of 70% of the once-off spend towards the investor’s BBBEE scorecard (in terms of the DTI Code) for every year while the investment is held.
Fund risk mitigation
Because the junior mining sector is considered high risk, the fund has taken significant precautions to prevent downstream implications from unviable projects.
“The junior needs to have completed and attained all their necessary licences and have reached bankable stage from which we can conduct our own intensive evaluations,” Nair states. From an operating and development perspective, Stefanutti Stocks will deliver the technical support and experience (on a first right of refusal) and can also provide mining equipment and contract mining services.
Finally, the fund will also put in place off -take agreements for a significant portion of the production from these mines; and will make sure there is logistics available at a decent cost and analyse the creditworthiness of the off takers – reducing end-market risk as well.
Prospects on the horizon
There are eight prospective projects already in the pipeline, totalling R703 billion. These projects (detailed in the graph above) will be presented to and evaluated by the investment committee once the Fund has raised R500 million – the minimum capital amount required by the Fund.
Strong independent board
The fund’s independent board and investment committee brings to the table executive-level and governance experience in leading (and often listed) companies in various industries. Key players on the board include Chairman Mpho Makwana and directors Derrick Hyde, Mano Moodley, Gaurav Nair and Zukile Siyotula.
Investment committee members have expertise in geology, mining engineering, mining operations across the whole value chain, mining investments and development, mining finance and auditing, mining contracting, and corporate and project finance. The committee is chaired by Zukile Siyotula and its members are Dr John Hancox (leading geologist in the country), Vinay Somera, Derrick Hyde, Frik Venter and Nthabi Ledwaba.