AMN - Driving investment interest in junior miners - comment by Yolanda Torrisi

If large mining companies thought they were doing it tough, then spare a thought for the junior mining companies which are the lifeblood of the future of the industry. While it is tough for junior minors worldwide, it is even more difficult in South Africa. There has been a deterioration of confidence in the country’s regulatory framework and even just looking at the Johannesburg Stock Exchange (JSE), the story speaks for itself.

Very few exploration companies are listed on the JSE and the number of junior minors listed is nothing to crow about either. Some junior minors on the JSE include Bauba Platinum, Miranda Minerals, Tawana Minerals, Firestone and ZCI but none have any exciting news to share.

At the recent Junior Indaba in Johannesburg, Petra Diamonds CEO Johan Dippenaar said that a lack of flexibility in the application of regulations would make it impossible nowadays to build a company in the same way he had built a 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.

Economist Clive Hart, a former guest speaker of The African Mining Network, says market cyclicality is one thing, but legislative instability disturbs the cycle and means investors will abandon a mining district.

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

“They see it as orphan and 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 black economic empowerment targets that keep changing are at the core of uncertainty. 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 that is suffering. Poor planning and spending by the mining sector in general during the boom times has damaged a lot of the retail investment in the sector.

Another former African Mining Network guest speaker, Paul Miller, a resources banker at Nedbank, says, “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.

“We have lost the public investors and they won’t come back again,” he said. “The new investors in the sector are largely private equity. 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,” Paul Miller says.

Luckily it’s not all doom and gloom.

Rob Still, a long-standing mineral exploration investor and also a former African Mining Network guest speaker, has a no-nonsense approach. There are certain cast-iron rules that are worth following and that apply in any given regulatory environment for junior miners wanting to attract capital and investors.

So what should investors look for:

Here are some sage words from Rob Still.

-          Go for a high grade deposit. A high quality mineral resource “forgives a lot of sins” that the entrepreneur may commit, or the investor overlook.

-          Don’t 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 ore body.

-          Keep your failures small and your successes large. If something is not working for you get out quickly and cut all strings.

-          Keep a degree of philosophical thinking about the chances of success.

A little known fact, but statistics tend to point to this – on average it is the seventh owner of a certain project or mineral deposit that actually brings a project into production.

- Yolanda Torrisi is Chairperson of The African Mining Network and comments on African mining issues and the growing global interest in the African continent. Contact:yolanda@yolandatorrisi.com