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Missing the boat Posted: Fri, 08 Jul 2005 [miningmx.com] -- THERE’S growing concern in the corridors of the JSE Securities Exchange that it’s failing to capitalise on the mining boom. As a gateway to the African continent, where many new mining projects have been started, Johannesburg is an obvious listing destination. However, the fact of the matter is that Johannesburg’s being ignored in favour of London and Toronto, where “appetite for capital” is deemed greater. Roughly a third of London’s Alternative Investment Market (AIM) is composed of mining firms; of those, a large proportion plies their trade in Africa. According to the Toronto Stock Exchange (TSX), the leaning towards listing new mining ventures there is even greater. There were 37 new mining listings worth US$133bn on the TSX last year. This compares to six new listings worth $69bn in 2002. On the TSX’s Venture Exchange there were new listings worth $10bn last year, $7bn more than in 2002. Interestingly, however, Simmers & Jack is giving thought to listing the separate mining operations as subsidiaries of the company on the JSE. “That would, theoretically, attract different types of investors and we’re giving thought to that as an alternative,” Miller says. Noah Greenhill, CEO of the JSE's venture capital market, AltX, calls for some soul-searching. “We’re perpetuating our own myth. If astute foreign investors are pulling out their chequebooks, why shouldn’t astute South African investors do the same?”
Greenhill says that take-up of the AltX has been slow, particularly by mining firms. But there are signs it’s improving. The relaxation in exchange controls, and claims that secondary inward listings will be easier to trade in Johannesburg, is helping to grease the wheels. He estimates 10 new listings of companies in the coming months, the majority being mining firms.
One such regulatory improvement is that the JSE has agreed to accept that TSX listing requirements
would supersede those of Johannesburg if that’s where a mining company is primarily listed. “But we need the support of the broking companies and financial advisers,” Greenhill says.
However, Peter North, a director of corporate adviser QuestCo, says that the key to encouraging investment in junior mining is the creation of credible and successful companies. SA has a poor track record of junior mining.
Says North: “If we have these companies we don't need an AltX, because they can list anywhere in the world. You create investor appetite by creating good companies.”
There’s some appetite for mining financing in SA. Last year there were just over $4bn worth of financings on the TSX and its venture capital bourse – 1 791 separate financings. The JSE recorded four mining-related financings in 2004, with a value of $933m. That indicates there’s no aversion to spending as long as it’s on the right projects.
The root of the problem is that there aren’t enough
projects, partly owing to the slow rate at which prospecting licences are granted.
Mike McWha, MD of African Mineral Standards, says that SA needs thousands of exploration projects before a mine can be delivered. But current exploration spend sources from SA has almost dried up.
Research by Canadian-based Metals Economics Group showed that 90% of exploration of $5m or less is being financed from Australia and Canada. SA generates almost no exploration spend despite already providing 80% of the world’s platinum group metals, 50% of all gold reserves and significant coal and chrome reserves.
Says McWha: “A survey published in October last year by the Fraser Institute ranked SA in the top 10% in terms of mineral potential. When the legislative environment was taken into account, SA fell to the bottom 30%.”
A comparison with other African countries show that SA’s regulatory
environment is cumbersome. Research conducted by QuestCo’s James Allan and McWha showed that mining licences take between four to six weeks in Zambia and two months in Ghana. The Democratic Republic of Congo takes six to nine months to issue a mining permit, compared to the nine months minimum in SA.
Excluding the carrying of company costs while waiting for an exploration permit to be granted, exploration firms in SA can spend up to R250 000 waiting for their piece of paper to be rubber stamped by Government.
Allan says that allowance should be made for a reconnaissance permit that doesn’t require environmental studies. That permit would enable mining firms to survey prospective land, even take soil samples, without intruding into the land.
Says McWha: “In summary, the exploration capital being spent worldwide is by-passing SA and South African talent is tending to follow the money.”
McWha says that SA geologists will have to be culturally flexible
because they’ll be working in regions outside SA, particularly Africa. A number of companies, such as Albidon (Zambia, Tanzania), African Copper (Botswana) and Adastra (DRC) have signalled their intention to establish sustainable businesses in Africa.
PricewaterhouseCoopers believes that isn’t enough. The level of global exploration increased nearly a third in 2004 to $1,7bn among the 40 major mining companies the auditing firm polled for its annual publication mine*. But much of that spend on exploration was through acquiring companies with greenfields potential and by spending capital on seeking brownfields expansions of existing mines.
Says PwC: “The trend of higher proportions being spent on late-stage projects and mine site exploration compared with grassroots exploration has continued. The key output of exploration is a pipeline of future projects. The recent trend – which has seen the larger mining companies seeking their growth through late-stage
project expansions and mergers of acquisitions – isn’t sustainable.
“If the industry is to reach 1997 expenditure levels of $5,2bn it will need to properly embrace exploration again. The timing of the re-emergence of these companies as major explorers or funders of explorers remains to be seen, and we watch with great interest.”
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