Encouraging investment for junior miners is becoming a persistent issue amid faltering markets and investors increasingly seeking ways to settle their capital in other markets, stocks and companies that can guarantee its safeguarding and growth.
Based on the sentiment of participants of the inaugural Investment Battlefield competition (held at this year’s Investing in African Mining Indaba, in February), this trend was highlighted as counterproductive for junior miners that rely on investors for capital to explore and develop their projects and, ultimately, start operating at a profit.
Raising capital for junior miners and their projects through external investment took centre stage during the competition, which was aimed specifically at highlighting the struggles of these marginalised role-players in the mining industry.
The Indaba was held from February 6 to 9 in Cape Town, with the Investment Battlefield competition taking place during a morning session on February 7. Representatives from 16 junior mining companies presented their projects, including demonstrations on how investors could benefit from them, to a panel of judges.
The criteria for entering the competition were that projects had to have a market capitalisation of $50-million or less, or be managed by a privately owned company of equivalent market value, and projects had to be located in Africa and be easily identifiable as being operated by an actual mining company and not by a company simply owning an exploration licence.
Prizes, valued at more than £15 000, included free attendance passes, an exhibition stand and hotel accommodation for the 2018 Investing in African Mining Indaba.
London-based Consolidated Nickel Mines (CNM) – an operating subsidiary of Consolidated Mining & Investments, which is trying to restart the Munali nickel mine, in Zambia – was the winner of the competition.
CNM CEO Simon Purkiss tells Mining Weekly that the past six years have been “particularly challenging” in terms of sourcing funds for project development.
He avers that the traditional financing model of obtaining capital through bank loans has not returned, adding that, while the banks like to claim that their doors are “open for business”, their safe doors are “firmly locked”.
Further, Purkiss says the liquid markets of Aim, the TSX and the ASX are showing signs of recovery. “The ASX and TSX show growth from retail investors, but the institutional investors, which were stronger on Aim, do not appear to be returning any time soon.”
This, he adds, shows that the private-equity groups from which funds are sourced have different operating models. “Seeking them out and finding ways of working into these different models has kept us busy. We are, however, confident that we will close out the finance package in the coming months.”
Meanwhile, mining and resources growth specialist To-The-Point Growth Specialists partner Bernard Swanepoel says junior miners are facing extensive impediments to sourcing adequate funding at the right time, as junior projects are very time specific. “The situation is exacerbated in a cut-throat industry dominated by well-known, established mining companies with large profit margins and volumes of output that can justify taking increased risk without the likelihood of overall failure,” he adds.
Timing and capital are key factors to the success and survival of junior miners and lengthy legislative processes could, therefore, lead to the demise of these capital- sensitive projects.
Swanepoel says there simply “are not many junior mining success stories in South Africa”, adding that major mining companies have inadvertently, as well as intentionally, created an environment in which “only they can survive and thrive”.
Purkiss says that CNM has been “fortunate” to receive financial backing from London-based mining fund CE Mining, which evaluated the Munali mine project and the work undertaken to enhance project economics.
CNM tried to source funds after it secured the rights to operate the Munali project in 2014, with CE Mining funding a feasibility study to assess the economics presented by CNM.
Purkiss says, based on the successful demonstration of the improved economics, CE Mining also funded a series of derisking projects that further improved the project’s economics.
The success achieved thus far on the Munali project is, in part, due to the investment made by CE Mining, which showed faith in the project and the team behind it, thereby enabling CNM to rework the project into a robust operation, he explains.
Purkiss adds that CNM intends to proceed to the advanced stages of production while remaining profitable at current commodity prices and “riding the predicted rise in nickel prices – when it does eventually [materialise]”.
CNM requires an additional $40-million to institute a full-scale restart of the Munali mine, which was shuttered in 2011 after a series of mishaps while operated by the previous owner. “The mine and plant [received] a high level of care and maintenance and, thus, restarting concentrate production is envisaged within five months of the financing being made available, which obviously helps cash flow.”
The miner intends to produce concentrate by the end of 2017, which, based on forecasts by some metal analysts, Purkiss says, will be “good timing”, as it coincides with a metal price recovery.
Further, he points out that CNM has also ensured it will be able to sustain production at a $7 000/t nickel price, based on the assumption that nickel prices might head in that direction in the future.
Purkiss says winning the Investment Battlefield competition “has also meant that people have been talking about the project in all spheres of finance and it is giving us a boost in the financing process”.
London-based iron and gold junior miner Sula Iron & Gold’s Feronsola exploration project, in northern Sierra Leone, described by the company as highly prospective for gold, was the Investment Battlefield runner-up.
Sula Iron & Gold CEO Roger Murphy tells Mining Weekly that, while raising equity capital remains “tricky”, it has become a lot easier in the past few months, owing to rising commodity prices. This is also spurring investment in some of the specialist resources funds, which have reported cash inflows as investors seek to exploit the rise in metals prices.
However, Murphy points out that most institutional investment funds have a mini- mum market capitalisation cutoff, which “makes it difficult for small explorers”.
In the case of Sula Iron & Gold’s financial operating model, the miner raised about $2-million in late 2016, mainly from high-net-worth investors. However, these investors knew the company’s management team well and were prepared to support it, says Murphy.
The Feronsola project includes the Sanama Hill exploration target (ET), which is of particular interest to the miner; this area is only about 500 m2 within the larger 153 km2 licence area entitled to Sula Iron & Gold.
Based on an ET calculated by independent consultant SRK Consulting, Sula Iron & Gold is using its existing Joint Ore Reserves Committee-compliant ET of between five- million tonnes and seven-million tonnes at a concentration of 4 g/t to 8 g/t gold to plan for future mining.
Murphy says, in future, Sula Iron & Gold plans to focus on exploring the remaining 8.5 km of prospective targets identified using geophysics, thereby expanding the potential scale of the project.
He adds that, only once there is a clearer understanding of the size of the gold resource, will Sula Iron & Ore be in a position to start engineering work to assess the cost of building a gold mine.
Murphy says the $2-million raised by the company in 2016 will be used to finance the drilling campaign, which is due to start shortly.
The drilling programme is another component of junior miners’ campaigns that Murphy says requires careful balancing to ensure the meaningful expenditure of available capital. Sula Iron & Gold negotiated a deal with drilling company Equity Drilling, in which the company agreed to receive a significant portion of its payment in the form of Sula shares, thereby preserving a significant amount of working capital. This mutually beneficial understanding also resulted in Equity Drilling providing an additional drill at no extra cost.
Murphy describes the inaugural Investment Battlefield competition as an “excellent way of attracting a wide range of small African explorers”, commending its “high-quality” judges, comprising institutional investors and larger-company CEOs.
Impeding the Little Guys
Swanepoel states that one of the major impediments to junior miners is the overarching, extensive and, in some cases, unnecessary regulations in the mining industry, in general. These rules and regulations have a greater impact on junior miners as they are more susceptible to any form of uncertainty.
He cites an analysis conducted by professional services firm KPMG, which indicates that 214 pieces of legislation are applicable to a small, listed mining company wanting to operate in South Africa.
“This is crazy,” Swanepoel declares, adding that, amid such a volume of regulation, junior miners have only two options: “break the law or go out of business . . . it is as simple as that”.
He highlights a worrying trend of stagnation and inactivity in exploration and prospecting by junior miners in South Africa.
“As far as I am aware, there are more than 2 000 active prospecting permits in South Africa,” he says, explaining that less than a handful of these permits have materialised into any form of mine or significant exploratory project.
Swanepoel suggests that the Department of Mineral Resources enforce greater oversight of work undertaken by a mining company once a prospecting permit is granted and, if no significant and/or justifiable work has been undertaken within a specific timeframe, the permit should be revoked and made available to another mining company.
He emphasises that junior miners desperately require clear regulatory guidance from government, as this would create a justifiable level of “posi- tive certainty”.