Johannesburg – Many junior mining companies struggle to raise capital because their deals, which range between R50m and R300m, are viewed as too small by banks and private equity funding, says an expert.
However, a new fund has been launched to make it easier for these mines to access capital.
Gaurav Nair, managing director and “the brains” behind the fund JSS Empowerment Mining Fund, explained how it all works at the ENS Africa offices in Sandton on Thursday.
He explained that this low-risk vehicle is designed for mines that have completed their exploration and licencing requirements and have reached bankable feasibility.
The fund is as a result of a joint venture between financial consultancy Jaltech and South African construction company group Stefanutti Stocks.
The construction and mining is contracted to Stefanutti Stocks, which helps mitigate operational risks. The operating phase is where most of these junior mines fail, explained Nair. The construction group also co-invests on deals by providing equipment to the value between R50m to R200m.
Stefanutti Stocks has developed and assisted a number of mines to become bankable, explained Nair.
“Junior miners just need a bit of capital to get over the hurdle to establish infrastructure and working capital… Stefanutti Stocks help them get over hurdle,” he said.
So far the fund has eight prospective projects in the pipeline, totalling R703m. The average size of the projects is R88m.
To meet fund requirements, the mines have to be South African, unlisted or listed on AltX, gross assets of less than R500m, employ open cast mining, bankable feasibility, and be viable at today’s prices.
The return objective is at CPI+10% per annum on the investment amount.
“There is a tax benefit, in that the investment is 100% deductible from the taxable income in the year the investment is made,” said Nair.
Returns could be as high as CPI +20% per annum including the tax rebate.
“Tax relief alone equates to 11% compounded return over a five-year investment period,” he added.
There is also a recurring Broad-Based Black Economic Empowerment (BBBEE) benefit, where investors can claim in addition to tax benefits, 70% of their investment into enterprise development and supply development shares as BBBEE qualifying spend.
"They can claim this year-in and year-out on a once-off spend."
The fund is looking to raise R1bn in two windows. The one will close at the end of February, for those investors who want to secure a tax benefit for this financial year, explained Nair.
The second window will close at the end of August this year with the aim that the R1bn will be raised.
“The goal is to develop junior mining companies to become independent in the future,” he added.