INVESTMENT & FINANCE

Funding advice for the

Mametja Moshe is the founder and CEO of Moshe Capital (Credit: Mboma)

UNDERESTIMATED AFRICAN MINING SECTOR

Mametja Moshe believes that the African mining sector is often underestimated and is optimistic about the prospects for mining on the continent.

Not only does Africa have a rich endowment of commodities, but our young population and opportunities for using Fourth Industrial Revolution technologies position us well for mining investment.

Covid-19 has changed the world as we know it and the same goes for the African mining sector. One possible positive outcome for African mining following the global economic shock could be increased investment into certain commodities.

In 2020, the commodities in demand are gold, PGMs, copper and battery minerals. In addition, African exploration is securing funding where investors have confidence in management and the project has scale potential.

The gold price today is around US$500 (R8 245) higher than 18 months ago. This more than triples miners’ profit margins, which have also benefited from the decline in fuel costs. In times of economic uncertainty, investors typically turn to safe-haven assets, which could result in a renewed gold rush for a continent rich in this commodity.

In addition, Europe and other geographies are seeking to diversify the source of their commodities outside of China, which could also result in increased activity for Africa, especially in battery minerals.

The outlined factors all indicate that Africa’s mining industry will seek further investment with a view to attaining economic recovery.

INVESTMENT & FINANCE

a good starting point, with the caveat that companies will need to be more innovative about how funding can be raised.

Public bourses have experienced a bloodbath and are still difficult places to source any funding. Does this mean that mines cannot raise funding in this environment? We do not believe so, and Sasol’s recent announcement of a $2 billion (R33 billion) rights offer supports this. That said, raising public equity funding will be more difficult in the coming year, as investors go after ‘safer’ assets, including resilient investments and jurisdictions. Rights offers may be attractive as they would not adversely dilute existing shareholders.

Development finance institutions are going to be critical in this period. Although there are various Covid-19 relief programmes in Africa worth over $20 billion (R330 billion), none of these are specifically directed at mining. Developmental finance institutions may take views to invest in mining operations given that their investment criteria lean towards the retention and creation of jobs, economic and social development, and sustainability goals. Mines that want to access this funding will need to ensure that these criteria are met and weigh this against potential profitability and sustainability goals for their businesses.

Streaming transactions: In recent times, traders have been funding mining companies on the back of their production. This method is becoming popular as it is seen as a win-win solution in the current crisis – miners need capital, and traders are then able to enjoy the upside in commodity prices.

Internal resources: As we know, cash is king. Several companies across the globe have announced that they can withstand the impact of the Covid-19 using internal resources and existing lines of credit.

Can we find more innovation for funding African mining projects?

Having advised on some of the most complex mining deals in Africa, including advising Lonmin on SibanyeStillwater’s R4.1 billion acquisition of Lonmin’s issued share capital, Moshe Capital’s approach is to focus on the fundamentals for inclusive prosperity in an innovative way.

Mines should seek out pockets of cash earmarked for mining businesses. For example, we are a shareholder in Mining Minerals & Metals plc, a specialpurpose acquisition company listed on the London Stock Exchange, which seeks to acquire businesses in natural resources exploration. Existing cash shells could provide an attractive cushion, particularly for exploration companies and junior miners.

Internal sources of funding may include the disposal of non-core assets, but it is imperative to attract interest from the right acquirers if this is an appropriate course of action. In the past, we have identified and highlighted attractive cost or revenue synergies for potential investors, which has led to the successful disposal of non-core assets. These include combining contiguous mines, which could increase life of mine; the disposal of assets to benefit neighbouring mines from existing infrastructure; and disposals of plant and equipment, especially inter-Africa.

Some lessons learned when investing in African mining

One of the most common challenges mining companies experience on the African continent is around stakeholder management. The common theme is a lack of government, community and local partner involvement in projects at nascent stages. The value of on-the-ground local knowledge, constant understanding of changes and established networks in African projects is key to navigating the local nuances of each country and agility to engage stakeholders expeditiously. ESG Covid-19 has (environmental, social and governance) changed the world analysis is an investment in realising shareholder value and the absence of good as we know it and the ESG can be a costly value erosion. same goes for the African

Investors should not underestimate mining sector. One the importance of proper ESG based on the perceived unsophistication of some possible positive outcome African countries. Investors and funders are for African mining held to international standards here too – following the global something which should be a given, even if there are some countries with more relaxed economic shock could be compliance requirements. increased investment into

A second challenge relates to changes certain commodities.” in regulation during the investment period. Continuous engagement with the government is required to ensure alignment and minimise risks to the project on account of regulatory changes. In South Africa, ongoing active engagement between Minerals Council members and the Department of Mineral Resources and Energy assisted in unlocking regulation after a period of hiatus.

Clearly there is no catch-all solution in a tough market; however, miners will need us to all come together as advisors, funders, investors, government and other stakeholders to find innovative, unique investment solutions that contribute to inclusive prosperity.

Perhaps this is what the Covid-19 pandemic is teaching us – to work together to find inclusive solutions as a united industry.