Mining in focus
the Junior Mining Indaba that exploration is tough at the moment and globally there
has been a reduction in money spent on early exploration projects. “It doesn’t seem
that investors have the same risk appetite they had 20-odd years ago. We need to put a
positive spin on mining and make especially young people excited about mining again,”
he said during a panel discussion.
The constrained operating conditions in South Africa had another unintended
consequence: they stymied the growth of homegrown exploration companies. Hopefully
that changes in the future. In the meantime, all Mantashe can do is hope that he can lure
international explorers, and that the money indeed follows the geology. But there are
many challenges, and as long as risk trumps reward, hope for a new dawn in exploration
will remain just that.
The riskiest of all
“Prospecting is without a doubt the riskiest investment of them all, and more than 90%
of exploration projects fail, said Errol Smart, managing director and CEO of Orion
Minerals. Smart spoke to Mining Mirror ahead of the Junior Mining Indaba. Orion is
developing the Prieska Zinc-Copper project in South Africa’s Northern Cape Province.
Orion is one of a handful of new projects in South Africa that has been developed from
scratch. The company started its work in the Northern Cape even before Zwane’s reign, so
Smart knows all about the difficulties of operating under a business averse regime.
“We took a bet and it paid off, but always thought something would change. Investors
would have shunned the project if it wasn’t such an exceptional ore body,” he said. Investors
are well aware that projects in African countries are, in most cases, extremely high risk. On
the other hand, investing in early stage exploration is the one class of investment capable
of providing shareholders with many multiple returns. An investment in greenfields
exploration will not realise the same conservative sort of returns that banking or pension
fund type funds are hoping to achieve, but the risk is 10 or 20 times higher.
Nurturing explorers
Australia and Canada can be considered as incubators for junior exploration companies.
That is because the business-friendly environment has made it possible to establish and
nurture a culture of investing in risky exploration projects. People in these countries invest
a small portion of their savings or their pension funds in those types of ventures with the
premise that they would be successful.
If a person thus invests in something as risky, and is then told that he or she would not
own the project 100%, as the previous Charter envisioned, it is clear why investors left our
shores. In fact, other African countries, like Ghana, Botswana or Namibia became a lot
more attractive for investors.
We all know what happened in Zimbabwe when government entertained the same
thoughts. It’s a simple equation. If a junior exploration company takes 100% of the risk,
Left: Olebogeng Sentsho, CEO of the Simba Mgodi Fund, has been looking at alternative methods
like crowdfunding and blockchain technology to finance exploration projects.
Right: The Minister of Mineral Resources, Gwede Mantashe, has on numerous occasions
expressed government’s wish to attract new exploration companies.
www.miningmirror.co.za
AUGUST 2019 MINING MIRROR [25]
AUGUST 2019 MINING MIRROR [25]