[miningmx.com] — PROBABLY more than a few shareholders and incorrigible penny-stock punters are wondering whether participation in the latest fund raising effort by struggling South African fluorspar miner, Sallies, will bring suitable rewards for the risk.
Sallies, as detailed on Miningmx and Fin24 has over the last three years promised much but delivered consistently short of reasonable expectations. Around R170m has been raised from investors over the last two years with no commensurate return for that substantial injection of new capital.
It would be reasonable to expect the market to turn its back on Sallies after a string of disappointing production performances. Yet it seems Sallies still has several dedicated backers that will ensure that the latest fund raising effort – to raise R75m via a debenture issue – is successful.
For shareholders and investors considering giving Sallies another chance to live up to its much-vaunted potential, it is probably worth carefully scanning the recent notices around the proposed rights offers.
Breaking it down
Firstly, I note that a portion of the new funds raised will be earmarked to repay bridging finance provided by Dale Capital Partners Limited, retail tycoon Christo Wiese’s Titan Financial Services and Trinity Asset Management.
These three entities – which will underwrite the latest rights offer – propped Sallies up with bridging finance of nearly R35m between December 20, 2007, and March 6 this year.
To break it down further, Dale Capital provided loans of R13m, Titan R10.3m and Trinity R11.6m.
These loans were critical to the struggling Sallies, ensuring a suitable mining fleet and plant infrastructure and the company’s Witkop Mine and to increase capacity to treat dumps at the Buffalo Fluorspar Mine.
Who and why
Consequently, Sallies has secured three separate underwriting agreements with Dale Capital, Titan and Trinity, which have undertaken to underwrite 60%, 15% and 25% of the proposed rights issue of 151.5 million convertible debentures at 50c each.
The fact that Wiese’s Titan is underwriting the smaller portion of the rights issue is perhaps understandable. Wiese has already chipped in generously at Sallies, at one point forking out R30m in an earlier shares-for-cash issue at 70c a share.
But that at this point readers may be asking who the hell is Dale Capital… and why are they willing to go so big at Sallies?
It did not require too much detective work to figure out that Dale is not (as a reader suggested last week) a vehicle associated with Sallies CEO Tom Dale.
Intriguing
According to Dale’s website, the group “is in the business of investing in privately owned businesses with an enterprise value of $10m to $50m and strong growth or turnaround potential as well as in quoted small and mid-cap companies with value that can be unlocked through private ownership or through the application of private equity principals by an influential, but non-controlling, shareholder”.
Perhaps more important in the Sallies context is the claim that: “Dale believes that, due to a mis-pricing of risk and often inadequate capital markets, many companies in Southern Africa are fundamentally undervalued relative to their peers in developed markets and hence offer attractive opportunities for private equity investors with in-depth knowledge of the region.”
It is rather intriguing to see that Dale Capital’s business address is Port Louis in Mauritius, and that the company is listed on the Mauritian Stock Exchange.
The directors involved in Dale Capital are also worth observing.
The CEO is Charles Whatley, a former compliance officer for Appleton International, and the investment officer is Edward Pettit, who previously worked for Close Brothers Corporate Finance. Listed under the non-executives are well known South African executives Norman Noland (the deputy chairman of Sekunjalo) and Quinton George (who heads up specialist asset manager Trinity Asset Management).
Untying purse strings?
The presence of Noland and George on Dale’s board may be easily explained.
According to Dale’s website, one of its main investments is (an undetailed) stake in Sekunjalo and a 67% stake in Trinity Asset Management (acquired in February this year in what was deemed a related party transaction according to the rules of the Mauritian Stock Exchange). Another notable investment by Dale Capital is a stake in newly reverse listed upmarket hotel operator, Queensgate Leisure Holdings.
Could Dale Capital be the “prospective” new shareholder referred to by Sallies CEO Tom Dale during his brutally frank report to shareholders a few months ago?
In any event, the fact that Dale already holds a majority stake in Trinity is means that the Mauritian company stands a good chance of becoming a dominant shareholder at Sallies if current shareholders are loathe to pitch more new capital at the mining group in the upcoming debenture issue.
But with Dale Capital committing strongly to the Sallies cause it seems likely a few sceptical Sallies shareholders may untie those purse strings?
