Remember Amalia Gold? The company briefly lit up the JSE in the late 1990s with a promise to mine gold from a prospect in Schweizer-Reneke in North West province before losing more than 90% of its value. It disappeared in a paper trail of fraud proceedings. How about Gazankulu Gold Holdings, or more recently Pamodzi Gold or Great Basin Gold?
They, along with a cartful of other long-forgotten names, populate a veritable necropolis of mining freebooters that the JSE seems to attract.
Whereas the Australian Securities Exchange (ASX) has hundreds of mining hopefuls, South Africa has only a handful. When it comes to junior mining in South Africa it’s more a case of cadaver than endeavour.
“I wouldn’t blame the JSE. It’s more a case of regulation among the financial service providers,” says Errol Smart, head of the Minerals Council South Africa’s emerging mining desk. “Juniors are viewed as too risky for South African institutions so they get little support.”
There are also fundamental reasons small mining gets better support in places such as Toronto, which has a vibrant junior mining sector, or Sydney. “The ASX is open to sophisticated investors from a knowledgeable and well-educated retail base,” says Smart. More than four decades of regulation enabling Australians to manage their own pensions has provided an active market of individuals willing to take a punt.
Small mining companies that perform well on the JSE are penalised for their success as institutions are not allowed to own more than 0.5% of small caps
Paul Miller, a business development specialist at consultants AmaranthCX, says small mining companies that perform well on the JSE are penalised for their success because institutions are not allowed to own more than 0.5% of small caps. It means a lot of promising businesses don’t even attempt to access the public markets, and that can lead to unintended consequences.
A decade ago, most of South Africa’s coal production was owned by a handful of companies. Today, there are roughly 69 new, privately owned collieries. Because they operate beneath the radar this puts greater responsibility on the state in having these operators comply with environmental regulations, which is a risk.
Similarly, manganese production has grown from four main producers to 11 operating roughly 25 mines, most of which are in the Northern Cape. The outcome is chronic oversupply of the metal. The sector is crying out for a listed major that could use public valuation to benchmark the rest of the sector, and set about much-needed consolidation.
The main danger, however, is what’s happening to South Africa’s mining sector as an investment centre. Financing junior mining is about primary capital raising, not the secondary market where investors pick up shares and perhaps one day enjoy a so-called “ten-bagger”. Without easy access to South Africa’s capital markets, grassroots mining is restricted.
A solid investment base of well-capitalised backers is needed because junior mining is a long-term undertaking. Take Southern Palladium, which took the bold step of listing on the JSE, via an inward secondary listing, in June. Despite favourable long-term prospects for platinum group metals (PGMs), which few dispute, shares in the company are 52% lower since debut simply because the company ran into a sharp global pullback in commodity equities. Understandably, the backers behind Sedibelo Resources, which operates the Pilanesberg Platinum Mine, are holding off on its listing plans, given the current PGM market.
A solid investment base of well capitalised backers is needed because junior mining is a long-term undertaking
Southern Palladium CEO Johan Odendaal says junior miners in South Africa have no option but to look outside the country to raise capital. Poor capital raisings “leave the company with a weak balance sheet to take the project up the value curve,” he says. In its defence, Southern Palladium has a strong board: its chair, for instance, is Terence Goodlace, former CEO of Impala Platinum.
Quite often, however, junior miners lack depth in skills while their assets represent slim pickings given that South Africa is a mature mining district.
Who knows who’s running the shop at Eastern Platinum (Eastplats), a Toronto-listed business that mines chrome from the long-abandoned Crocodile River PGM operations? All the big decisions seem to be made in China. Most recently, its COO quit after only two months in the job. If there’s a ray of light, it’s that “hanging around” has its benefits. Shares in the company are 45% higher in the past five years.
In a similar show of staying power, Mine Restoration Investments (MRI), a business listed on the AltX in 2012, has been reinvented as Mantengu Mining. Previous management, including its chair, the serial mining entrepreneur Quinton George, was engulfed in criminal charges during 2020 related to MRI dealings. Mantengu appears a much different prospect — it is buying a chrome and PGM prospect — but the market is not prepared to give it much value at the moment. Shares in the company are 67% lower year-to-date.
The JSE suspended Chrometco in July after it failed to file its financial numbers. It’s no wonder as the firm’s Black Chrome Mine is in business rescue and its holding company, the Sail group, is in the same plight. It’s likely it will join the ranks of “zombie companies”, which is what Miller calls listed entities that lurk in the shadows of the JSE without actually doing anything. One example is Firestone Diamonds, which remains listed even though it went bankrupt in 2020.
It’s easy to list but it’s hard to remain listed
— Errol Smart
Nonetheless, junior miners still emerge. Copper360, which is planning to mine surface copper in the Northern Cape, is planning to list. The company is backed by Jan Nelson, former CEO of Pan African Resources. And there’s speculation that Rudolph de Bruin, a co-founder of the mining fund AMED and a member of the Cape Mining Club, is considering multiple listings of his companies on the Cape Town Stock Exchange.
“It’s easy to list but it’s hard to remain listed,” says Smart. That’s one way of looking at the conundrum facing junior miners in South Africa.
His Orion Minerals recently raised R250m from the Industrial Development Corp, finalising a three-year funding puzzle. Orion is actually reopening previously worked mining properties so it doesn’t strictly qualify as a start-up miner. You have to admire the buccaneering spirit of the companies that start from scratch.
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