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.
Unlocking traditional funding options for the junior mining sector
During a webinar hosted by Mining Review Africa late last year, 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 Grant Mitchell, head of the Junior and Emerging Miners’ Desk: Minerals Council South Africa, the most important thing is that a country creates a regulatory environment which is conducive to investing in junior mining companies.
“In this South Africa, for example, the regulatory environment is primarily targeted at large mining companies. The junior sector is growing, however, the regulatory environment doesn’t really support them,” says Mitchell.
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 companies to create a larger appetite for investment in a country.
Olebogeng Sentsho, from Simba Mgodi Fund, said that in order for junior miners to make themselves more investible, there are five key factors that juniors should take into account.
- Juniors are typically riskier ventures, most likely found in commodity exploration, such as oil, minerals, and natural gas. “Firstly, look at the commodity you are mining; is there a demand for it or is it a mineral that is in decline?” advises Sentsho.
- “Secondly, put together a detailed financial model that will make sense to investors,” she says. The challenge is that investors recognise a good business, and they make judgements by how ideas are translated it into financials. If the investor can’t visualise any return on investment (ROI), you get no money, and a good opportunity is lost to all.
- “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 in 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.”
Errol Smart, CEO of Orion Minerals, says, “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.”
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 play 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. PR | Re:public is focused on helping companies leverage digital platforms to attract retail investors. Retail investors assist with improving liquidity in their stock and stabilising their share price. If you want to learn more about PR | Re:public’s Investor Marketing Program, request a no-obligation call back.
