• INSIGHT
FUNDING AFTER COVID-19
Both commodity prices and investment in South African mining will no
doubt be impacted by measures taken to curb the spread of Covid-19 and
the anticipated economic fallout, writes Mametja Moshe, founder and CEO
of Moshe Capital.
Moshe Capital
During the Covid-19 lockdown, local mining operations
have been limited to care and maintenance activities.
Furthermore, anticipated mine closures will have an
adverse impact on production, which would affect commodity
prices. The recent credit rating downgrade by international
rating agency Moody’s further dampens economic outlook for
South African businesses.
The mining industry will seek further investment after Covid-19
is conquered, with a view to attaining economic recovery. The
standard ‘toolbox’ of funding mechanisms is always 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 can’t
raise funding in this environment? We don’t believe so, and Sasol’s
recent announcement of a USD2-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. The
Industrial Development Corporation
(IDC) has taken the lead,
with President Ramaphosa
announcing a
R3-billion investment in
SMEs. A similar view might
need to be taken to invest
in mining operations by
developmental finance
institutions, whose
investment criteria
lean towards 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.
Mametja Moshe, founder and
CEO of Moshe Capital.
56 • African Mining •May 2020
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, including Gold Fields, have announced that they
can withstand the impact of the Covid-19 using internal resources
and existing lines of credit.
Having advised on some of the most complex mining deals in
Africa, including advising Lonmin on Sibanye-Stillwater’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 special purpose 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 noncore
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; disposal of assets to benefit
neighbouring mines from existing infrastructure; and disposals of
plant and equipment - likely from our neighbouring countries such as
Zimbabwe, Botswana and Namibia as they launch low-cost projects.
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.
Moshe Capital is a 100% black women-owned South African
advisory and investment company which was the sole South African
corporate finance advisor to Lonmin on Sibanye-Stillwater’s R4-
billion acquisition of Lonmin’s issued share capital.
While the company has a global presence, the team has advised and
implemented some of the most complex deals in Africa with a winning
combination of technical excellence and in-depth understanding of
local context and stakeholders. Moshe Capital works in partnership
with clients and companies in which it invests to generate sustainable
returns on investment and promote inclusive prosperity in Africa.
www. africanmining.co.za