FOR a resource economy it’s curious there’s been so little mineral development by so-called junior miners in South Africa. However, a relatively minor capital raise in July by Orion Minerals, a junior miner that is reopening copper workings in the Northern Cape, is creating a welcome ripple in the market.
That’s because most of the R44m procured — raised through a share placement — was from retail investors, a poorly accessed corner of South Africa’s investment universe. “Train drivers and nurses put in R1,000 to R2,000,” says Paul Miller, a former resources banker involved in the transaction. “It’s not a lot, but it shows people want to be involved in the economy.”
For Miller, the historic lack of interest in junior mining is partly a conspiracy among the country’s largest investment institutions — he calls them “rent seekers”. Asset managers invest only in South Africa’s 100 largest companies where it is most lucrative, he claims.
He is also irritated with the government. The National Treasury has so far refused to support mining among other industries by approving regulations for flow-back shares which offer tax incentives. How is it, Miller asks, that the JSE is the 20th-largest stock exchange in the world operating in the 40th-largest economy? “We have a stock exchange we don’t deserve and we also have one of the world’s best mineral endowments. Why haven’t people joined the dots?”
But a set of reforms unveiled by the UK’s Financial Conduct Authority on July 11 demonstrates that a failure to attract retail investors in mining is not just a South African phenomenon.
UK reform
By JSE standards, London is thriving — there have been 50 mining listings in the past five years — but the bourse has a reputation for red tape that’s seeing it trail the Australian Securities Exchange and Toronto, according to Tom Attenborough, head of international business development in primary markets at the London Stock Exchange (LSE). Secondary listings, in particular, are being dissuaded, he says. This has led to ennui among retail investors in London.
Where once there were 70 mid-cap miners on the LSE there are now only 20. “That’s been a big change and we want to create an environment where juniors who are still coming through can scale up and become those businesses that fill the middle ground of $200m-$5bn,” he said at the London Indaba in June.
It’s true that regulated stock markets are losing out to more recently developed, less regulated industries. Cryptocurrency can be bought from a phone online at a street corner, but it’s much harder to buy shares in a company that’s digging up copper riches in South America.
“We have to be critical of where we’re telling people to put their money, especially when you get end-to-end online gaming,” says Miller. Utshalo, a joint venture between Miller and fintech company Ince, was behind Orion’s share participation plan last month. Miller hopes to make more inroads for companies outside the JSE’s top 100.
We have a stock exchange we don’t deserve and we also have one of the world’s best mineral endowments. Why haven’t people joined the dots – Paul Miller, Utshalo
But is cutting red tape necessarily the answer? Not so, says Adam Matthews, chief responsible investment officer at the Church of England Pensions Fund. He argued at the London Indaba that trimming back regulations represented “a watering down of the principles of good governance” that make London attractive to institutional investors.
“My fear is that there is a predetermined perception. Watering down hasn’t been proved and institutional investors and pension funds are deeply concerned at this agitation,” Matthews says of the LSE. “There is an opportunity to double down on how we work together. We stand behind those companies that try to do the right thing.”
There may be a simpler reason for the lack of investment interest in mining small to mid-caps. “They have lost investors loads of money,” says Tal Lomnitzer, a senior investment manager at Janus Henderson Investors in London. “We saw a wave of companies during the China supercycle which led to overvaluations,” he says. “There were some companies that should not have listed and so at the end of the day there is a lack of interest.”
This could account for the growing influence of proxy agencies of which Attenborough is critical. By working on behalf of shareholders there has been a breakdown in direct communication between company officers and their investors, he says.
For Orion CEO Errol Smart, the R44m is invaluable. “It will give us time to do the negotiations with debt financing and lenders and keep us going for six months,” he says.
We want to create an environment where juniors who are still coming through can scale up and become those businesses that fill the middle ground of $200m-$5bn – Tom Attenborough, London Stock Exchange
Asked if he’d still have listed knowing what he does now, he says: “I’d probably take it private.” While private equity has its own pitfalls — not least of which is that the entrepreneurs often end up losing control — it’s arguably more efficient. New mineral reporting standards, to be implemented shortly, will only chew up more management time, he says.
It’s worth acknowledging that Orion is sitting on millions of tons of copper reserves in a region that once supplied the market and is still well served by infrastructure. It shouldn’t be this difficult.
