If investment narratives are a form of storytelling, AltX-listed Mantengu Mining could be viewed as the third instalment of an Invasion of the Body Snatchers-type franchise, albeit with vastly different plots (read ventures) and cast of characters (read executives) each time (what cinephiles might call an anthology).
Originally listed in 1988 as Cenmag Holdings, a maker of obscure electronic goods, it was renamed Capricorn Investment Holdings in 2011 after becoming a cash shell. With the acquisition of a coal fines processing and acid mine drainage business in 2012, it rebranded as Mine Restoration Investments (boasting shareholders that included Stellar Capital Partners and Christo Wiese), but reverted to a cash shell in 2017 when these ventures were abandoned. In 2021 it was renamed Mantengu Mining in anticipation of a chrome mine acquisition, which was consummated in 2022, with the company once again sporting new shareholders and executives.
The company’s two most recent incarnations involved reverse takeovers, transactions where private companies “hijack” public companies — typically by exchanging its operating assets for shares in the latter. This is done to achieve a public listing without the traditional IPO process. Though it’s a cheaper and faster way to list, especially for small entities, conservative investors may prefer the stricter requirements of an IPO.
Still, reverse takeovers don’t lack investor safeguards, and in Mantengu’s case these included an independently prepared competent person’s report (CPR) to assess the quantity and quality of the company’s mineral reserves. Based on December 2021 chrome prices, the CPR valued the company’s sole asset at that stage, the Langpan chrome mine near Thabazimbi, at R851m. If recent market prices are used, this value swells to about R1.7bn (due to accounting rules for reverse takeovers, the fair value of the asset can’t be shown in the company’s financial statements).
Of course, owning a valuable resource and extracting it economically are two different things, especially for junior miners. After struggling to ramp up to steady-state production during the latter part of 2023, it took leadership and operational changes at the Langpan mine in December before chrome output finally achieved acceptable levels in January and February 2024. Though this was in just two months of the year, it was enough to turn the company profitable for financial 2024.
Determined to capitalise on a buoyant chrome market (driven by strong demand for stainless steel, its main application), the company is pressing ahead with construction of a second chrome processing plant at Langpan that should be completed this year. It also purchased chrome operations near Zeerust (the Goudini acquisition) in July. Altogether, these developments could more than triple the company’s chrome output once they’re in full operation.
Of course, owning a valuable resource and extracting it economically are two different things, especially for junior miners
While Mantengu’s “make hay while the sun shines”’ strategy can’t be faulted, it requires upfront capital, something that’s always in short supply for junior miners. Disappointingly, a R500m equity funding facility negotiated last year can’t be used for now due to a depressed share price. As a result, management recently began talks to secure a R300m debt facility. Perversely, a successful outcome here could boost the share price and resurrect the equity facility as a funding option or, alternatively, allow the company to fund acquisitions with scrip (as was the case with the Goudini mine).
It’s difficult to predict how long the upturn in the chrome market will last. Found in the same geological formations as platinum group metals (PGMs), most of the world’s chrome comes from South Africa (for many PGM miners, it’s a lucrative byproduct) so supply growth will be limited. Global chrome production increased 4% in 2023 and is forecast to increase 3% in 2024. On the demand side, several market research firms have projected a compound annual growth rate for stainless steel — chrome’s ultimate demand driver — in the range of 4%-6% over the next few years.
Mantengu has bigger ambitions than just chrome mining. Following an Afrimat-type model, it wants to acquire more neglected SME mining assets and improve their performance with better management, investment and scale (for example, there’s talk that Mantengu is looking to obtain assets from another JSE-listed mining company). However, as demonstrated with the messy Goudini acquisition — where the initial corporate vehicle for the transaction was put into business rescue after previously undisclosed liabilities surfaced — distressed assets can cause legal complications. That might explain why the chair of the board, a man with vast legal expertise, recently assumed an executive role within the company to focus on legal matters.
Though CEO Michael Miller, a 41-year-old chartered accountant, lacked mining experience before joining Mantengu, he’s supported by seasoned mining executives in operational roles. With a 24% stake in the company, the management team has plenty of skin in the game.
In the medium term, with record high chrome prices, the company’s profits could exceed its market cap if it can successfully mine and process enough chrome. Longer term, the management team need to prove their capital allocation skills and operational savvy, with the beaten-down share price at the time of writing suggesting that the market is still sceptical. Should they succeed, however, this “reboot” might just reward brave investors with a box-office hit.
The writer owns shares in Mantengu Mining.
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