R/€ = 16.28 Change: 0.33
R/$ = 14.55 Change: 0.26
Au 1343.56 $/oz Change: 8.04
Pt 798.24 $/oz Change: -0.80
 
 
R/€ = 16.28 Change: 0.33
R/$ = 14.55 Change: 0.26
Au 1343.56 $/oz Change: 8.04
Pt 798.24 $/oz Change: -0.80
 
 
BACK

Junior-specific Charter III provisions will boost growth

17th May 2019 BY: Nadine James
Creamer Media Writer

Minerals Council South Africa facilitated the inclusion of junior-specific provisions in Mining Charter III, gazetted in September last year, says Minerals Council Junior and Emerging Miners’ Desk head Grant Mitchell.

He notes that the provisions will assist the stability and growth of the junior and emerging mining space, which has lagged behind that of Australia and Canada.

Advertisement

Mitchell points out that there are around 1 200 and 700 junior miners listed on the Canadian and Australian stock exchanges respectively. The JSE only has ten listed junior mining companies.

He comments that the junior and emerging miners’ sector has been relatively unorganised with mining companies rarely given an opportunity to influence national mining policy.

Advertisement

The Minerals Council, recognising that these miners had not been adequately supported and had been sidelined from debates by larger miners and government, established the Junior and Emerging Miners’ Desk because, as Minerals Council social performance head Alex Khumalo comments, the sector is where the largest potential for growth lies.

To that end, the Minerals Council had to assist in creating a more enabling environment, and Mitchell believes that, “our biggest victory last year was on the charter. The Junior Mining Desk won those concessions through Tebello [Chabana] and his team”.

He comments that the specific provisions for juniors – which the Department of Mineral Resources (DMR) defines as companies with a yearly turnover of less than R150-million – include exemptions from some aspects of Charter III, including employment equity and ownership. Additionally, exploration companies are exempt from the ownership requirements, until said companies start developing a proven resource.

Mitchell explains that the reason the DMR exempted exploration is that the regulator had granted up to three times more exploration rights than mining rights, and yet little happened with those rights.

He attributes this to a combination of onerous regulations and a lack of finance. He notes that the DMR recognised that exploration and exploration funding had dwindled to almost nothing, and that its concession was an acknowledgement of the importance of exploration activity to establish a project pipeline.

Additionally, “a lot of prospectors and exploration companies are foreign investors and it would have been difficult for these companies to meet the ownership requirement”.

Mitchell notes that, in terms of ownership, the charter allows juniors to structure the 30% ownership component themselves, rather than meeting the structure stipulating 20% effective ownership, and 5% each for employees and communities.

Further, he comments that the charter’s employment equity targets were “designed for the Anglo Americans of the world who have multiple management tiers”.

Mitchell adds that many juniors or emerging miners have a staff complement of less than ten people. The provisions enable juniors to submit their company structure and then design the employment equity targets based on that.

Khumalo notes that, while the exemptions are a step forward, the Minerals Council had requested more favourable provisions – ones that would be more conducive to growth.

“Juniors with existing mining rights are not off the hook,” he notes, adding that it becomes difficult for juniors to comply with stipulations that are onerous for majors.

“It’s already a challenge for large mining houses . . . juniors have small budgets, small revenues . . . the expectations from the regulator and the communities far outweigh juniors’ ability to comply.”

However, the main sticking point was around the definition. Khumalo notes that the Minerals Council has incorporated a spectrum of emerging miners from family- run artisanal miners up to sophisticated operations with R500-million yearly turnover – which the Minerals Council believes should be the cut off for the classification for a junior miner.

Mitchell notes that the DMR’s R150-million cutoff only benefits the smallest of companies, with the significant majority of juniors – as classified by the Minerals Council – still bound by charter stipulations that they might not be able to meet.

However, he is hopeful that the DMR and the Minerals Council will come to a conclusive definition, adding that it is something both entities committed to in a memorandum of understanding – aimed at furthering the interests of the junior mining space – last year.

Desk Work

The purpose of the Junior and Emerging Miners’ Desk is to provide advice and support, and to act as a resource centre for smaller Minerals Council member companies, explains Mitchell.

The desk provides advice and support, and acts as a resource centre for the sector. The Junior Leadership Forum – held four times a year – elevates concerns from the Minerals Council’s 24 junior mining members, to the “apex decision-making body – the board”, says Khumalo.

“The chairperson of the forum sits on the board . . . a lot of decisions are made at the board level and in this way the juniors have a direct conduit to the main table.”

The Mineral Council’s junior membership includes two associations – The South African Diamond Producers Organisation and the Clay Brick Association of South Africa, who themselves represent 200 companies.

Mitchell notes that the desk has almost concluded research on the scope and impact of the junior sector, with preliminary data showing that the junior and emerging mining sector represented 10% of the industry in 2018. It also generated revenues of R54-billion and spent R55.5-billion last year, with R21-billion spent on procurement alone.

The final report should be released next month, Mitchell notes.

Khumalo comments that it is, “important to understand the potential for growth, because, as much as the large miners still generate the bulk of mining’s contribution to gross domestic product, the potential lies with the junior and emerging miners, and it is very difficult to support them, if we don’t have the full picture”.

Mitchell is also working on a White Paper on flow-through shares in the Canadian and Australian systems and how tax incentives for investment in juniors can be replicated locally. He has partnered with international law firm Fasken, and conversed with the Public Investment Corporation (PIC) and the Canadian government, Australian mining companies and the Australian government, to draft the paper, which should be published later this year.

The Junior and Emerging Miners’ Desk, recognising that funding is a major challenge for the junior and emerging miners, has had several meetings with the Industrial Development Corporation (IDC), as well as the PIC, who are looking to set up a fund.

“We’ve been having discussions with the IDC and PIC, trying to set up the Development Mining Fund . . . we managed to get everyone together at the Investing in African Indaba,” Mitchell says.

Khumalo notes that, “Investment in mining is always going to be high risk – but there are better environments in Canada and Australia with decent confidence levels around security of tenure, better policy certainty and support for the sector . . . we can learn from that”.

Mitchell also notes that the Minerals Council is looking into the Section 12J Venture Capital Companies regime, which allows investors to benefit from tax concessions – a 100% deduction of the amount invested – for their investment in a mining company, before it starts production.

Khumalo adds that normal 12J investments have high hurdle rates and would likely only benefit companies who have already “struck gold”, those with proven projects able to “get venture capital flowing”.

He comments that some 12J funds have been set up, but that the Minerals Council has yet to see mining investment, with mining companies often “beaten to the prize by technology and alternative energy companies”.

Mitchell says, in terms of financing, juniors “need all the help they can get”. Khumalo adds that the majors are not exploring in South Africa anymore – “they’re mining their existing resources . . . our sector is really the only growth point”.

He comments that, in terms of procurement, and even in the modernisation space, juniors are the growth prospect, as majors have established supplier networks and have already started their modernisation journeys with limited opportunity to introduce a lot of new technologies for mines nearing the end of their lives.

“When we started five years ago, we started with workshops on key policy areas for a broader group than just members. As we’ve progressed, we’ve noted that our junior members were quite well established already – because of the criteria and standards the Minerals Councils has for its members,” Mitchell points out.

This means that the free workshops, on topics ranging from finance, health and safety, policy and environment issues, were mostly held for nonmembers. One such workshop was held on May 10 and was open to anyone related to junior mining, including researchers, consultants, suppliers and producers.

He notes that the Minerals Council also set up a mentorship group of retired executives and paired them with juniors. “Initially there was a big uptake, but as mentioned, the companies have increasingly become more established.”

Evidently, the demand has come from nonmembers, and Mitchell notes that, “we made the decision that we want to help, because you’ve got to keep the pipeline going”.

He comments most of the companies require finance, with the other frequent request being assistance with problems concerning the regulator, usually around delays in granting approvals.

“The desk gets several queries ranging from people, who are ‘wannabes’ to people who have a lot going for them . . . prospecting rights . . . some type of funding, but have ultimately reached a plateau. Those people we send to our mentors.”

Mitchell notes that the mentors are not consultants, but they do give pro bono advice, and afford juniors access to credible contacts through their established networks.

“One of the risks when you come into the mining sector and you’re new is that you can be taken to the cleaners.” He notes that there are unscrupulous people who would “charge a fortune” for environmental assessments and/or mineral estimates that are useless. “The mentor can point you in the right direction to credible consultants, who are still going to charge you, but you’ll get something of value in return.”

Khumalo adds that the desk is looking into means of upskilling aspirant miners. “There might be a desire to mine, but there’s a serious skills shortage and, while we as the desk don’t have the have technical know how, we intend to speak to and potentially partner with existing structures, such as Mintek, the Mandela Mining Precinct, or the Council for Geoscience to host workshops to upskill industry newcomers on a technical level.”

Mitchell says South Africa has never really supported the growth of its junior sector and while things have changed for the better of late, there is still room for improvement. The Minerals Council has committed to furthering the gains that have already been realised. 

EDITED BY: Mia Breytenbach Creamer Media Deputy Editor: Features
EMAIL THIS ARTICLE SAVE THIS ARTICLE ARTICLE ENQUIRY
Advertisement
 
 
Prev Next