Junior Mining: What will it take to develop at a faster pace in Africa

Junior Miners in Africa are unique. This mining sector is faced with extraordinary Afrocentric challenges and frustrations such as political instability, policy uncertainty, lack of funding and massive infrastructure shortfalls, to name but a few. Stakeholders are saying that this sector needs more innovative support to grow at a faster pace, writes Sharyn Macnamara.

In Africa, agility and an appetite for entrepreneurship and operations is the name of the game for the Junior Mining Sector, but without support from the government and the private sector the development of this sector with huge potential for creating much needed jobs in the continent is undermined, and rather than growing, this sector has probably even contracted since the onslaught of COVID-19.

Who are the junior miners in Africa?

“Junior mining does not have a universal definition. Definitions differ from country to country and region to region. Primarily in Africa, a junior miner refers to a small to medium scale mining operator. Artisanal mining may or may not be included in that definition given the lack of mining technology used by artisanal miners,” says Kgothatso Nhlengetwa, founding director of Imbokodo Mining Services (Pty) Ltd, serving as an ASM consultant, researcher and advisor.

The African junior miner is very different to their global counterpart. Junior miners in the US, Canada and Australia, active in Africa too, are predominantly explorers, and then usually sell the developed mineral deposit at bankable feasibility level on to a major. The South African Junior or Emerging Miner, however, takes on the whole mining gamut: from discovery and exploration, through to construction, mining and extraction, beneficiation, marketing and sales and finally rehabilitation and closure.

This sector is complex and dynamic. In seeking to understand and support it in South Africa, the Minerals Council South Africa (MCSA) implemented an extensive research study which was concluded in 2019. Grant Mitchell at the MCSA Junior and Emerging Miners Desk explains, “Of our 80 odd Minerals Council member companies, 38 are Juniors – that is over 40% of total MC membership. Our Juniors are split into smaller and mid-tier producers and are capped at around R500-million turnover per annum, give or take. We also have exploration and development companies as part of our Junior mining membership.

“‘Emerging miners’, a term indigenous to South Africa, typically refers to smaller mining companies or micro-enterprises. Most are new entrants to the industry, and many have full BEE credentials. Since the advent of the Mineral and Petroleum Resources Development Act (MPRDA) in 2002, there has been a significant increase in the number of smaller mining companies operating in South Africa.”

To give an idea of just how valuable the juniors are to the South African economy, John-Ernest Fogwell, Founder and Chief Advisor at Africa One Holdings and MD of the Junior Mining Association in South Africa, cites the MCSA research study which refers to Statistics South Africa numbers in 2018, “The Junior Mining Sector in South Africa, at the time, employed between 33,500 and 40,300 people directly, and the total numbers employed were estimated to be closer to 150,000 people indirectly as Juniors rely heavily on contractors.”

“Considering the multiplier effect of between 7- and 10-times for job creation in surrounding industries, the Junior Mining Sector at the time created between 230,000 jobs (erring on the conservative side) and 800,000 jobs.”

He adds that, “In South Africa, we have about 414 companies regarded as Junior Miners, holding 685 mining licenses. Small-Scale miners are estimated in the region of 463 companies, with about the same number of licenses, while Micro-Miners, holding single licenses, are estimated at 341 operators.”

Junior miners are in a unique position to utilise mineral resources that are too small for major mining houses, and this makes them a powerful tool in utilising areas of land forgotten by the Multinationals that have been dominating the arena for years, and in developing economies and creating jobs on the continent.

Impediments to faster growth in Africa

So, what is impeding a faster growth rate for this powerful creator of jobs in the sector? The challenges again differ from country to country in Africa.

Nhlengetwa says, “In areas such as the DRC, major corruption, political influences, and lack of financial resources are typically the issues at hand. Another example is Ghana, where great strides have been made in attracting Chinese investors who have infiltrated the junior mining space, however the lack of environmental care and the exploitation of Ghanaian nationals are issues that have since emerged.

“Holistically, the junior mining space requires unique solutions depending on the region and the country. The approach to the solution to increasing developing junior miners must come from the grassroots level. The Junior

mining space requires a collective effort from both the private sector and government. The government needs to create policies and regulations that allow for an enabling environment. Highly bureaucratic processes often delay the process of starting a junior mine and some tax policies may be detrimental to the income margins of junior miners. The private sector includes not only investors, who are critical in the development of junior miners, but also other industries such as the banking sector and technical services. The banking sector is typically aversive to junior miners and given the capital-intensive nature of mining, the lack of financing options not only for mining but for prospecting is often a limiting factor in the junior mining space in Africa.

“In Africa as a whole, another area that requires attention in junior mining is the availability of cost-effective technical services for the feasibility and operations of the mine. This includes geologists, environmentalists, mining engineers, metallurgists and surveyors. The affordability of these services, pre-, during-, and post-mining is lacking for junior miners.  The fees of such professionals, especially those that have enough experience to sign off mining reports, are often prohibitive for junior miners.

An approach where the junior mining industry has access to services, finances and reliable permitting could increase the rate at which junior miners open small to medium mines that could provide employment for the people and revenue to the state contributing to the GDP.”

From a South African perspective, Fogwell concurs, “It is simple – what the junior miner needs to progress in Africa is reliable customised funding; responsible, transparent corporate governance when it comes to regulations; fair rules of engagement and fast turn-around on mining rights applications. Added to this – reliable electricity supply and transport and a criminal free, safe environment. Without these basic requirements to do business with high risk, the sector will be unable to progress at a faster rate.”

He points out that instead, the reality for the African Junior is a lack of reliable infrastructure – loadshedding, inefficient, expensive rail support, unavailable ‘slots’ at harbours, political instability – and for South African Juniors in particular, a recent history of “flip-flopping” politics with calls for dispossessing of land and nationalisation of mines and the Reserve Bank, slow bureaucratic processes, lack of education and skills in the industry, corporate governance issues, illegal mining, and the list goes on. On top of this, traditionally it is more difficult to mine in South Africa. “From an ore body point of view our mines are deeper, the shafts have already been developed and the easy pickings have been done,” Fogwell states. He highlights that some countries like the Democratic Republic of Congo (DRC) have seen significant growth because the ore bodies there are not as deep, and mines show faster returns on investments and quicker cashflow, which therefore makes investors more willing to take larger risks on their investments. “One only has to look at Cabo Delgado in Northern Mozambique and one can see that investors can take larger risks when resources are available. Top countries attracting exploration investments are DRC, Burkina Faso, Ghana and Mali – all four more than South Africa,” says Fogwell.

Lack of capital

In addition, Fogwell sees the biggest obstacle to growth in the sector on the continent as being first and foremost a lack of capital. “Homegrown Juniors in Africa are different to their international counterparts in that their board members tend to be operationally minded miners, not CAs, lawyers and financial gurus,” he says, pointing out, “Traditionally mining is funded by equity, especially if it’s Greenfield and Brownfield, but Juniors in Africa don’t necessarily want to partner.”

Customised financing to suit the industry needs is required, but there seems to be a disconnect between the financiers and the sector. “We could solve this by bringing the private equity and venture capital industries closer to the miners – who have deep institutional knowledge – with a view to develop a financial product or strategy for the industry that works for both parties.”

Tax incentives for investors, unrealistic regulatory requirements as well as the added economic pressures such as lack of cost-effective power, rail woes and security and criminality issues, compounded by political uncertainly, do not make for an environment conducive to investment.

“The South African banking sector is very conservative. Specialist funding is required for junior mining, and not necessarily on the prospecting side but on the production side too. You know, they often can’t get to that next step,” says Fogwell.

A qualified miner with a keen eye for copper, Shirley Hayes, the founder and CEO of SHiP, a Junior Mining company, weighs in, “Keeping control of my company while finding finance, especially in exploration projects has been my greatest challenge, by far. It forced me into tight corners around the acquisition table – negotiating from a position of weakness. If you are not careful, you can end up losing your entire project!” In 2008 Hayes invested her own capital to develop the Concordia tenement in the copper rich northern Cape Province covering 36 000 hectares of the most prospective copper targets in the area.

Mitchell concurs with Fogwell and Hayes in that the two greatest challenges for Juniors are primarily legislation and funding constraints. Mitchell highlights the stark reality in the industry that, “South Africa is now attracting less than 1% of all global exploration dollars – decreased from 2% 10 years ago.” He explains that an Exploration Task Team was set up in 2020 made up of the Minerals Council South Africa, the Department of Mineral Resources and Energy (DMRE), and the Council for Geoscience (CGS) to develop a viable exploration plan to remedy the lack of investment. The team put together a model of what is required in order for South Africa to reach its ambition of securing at least 5% of the global share of exploration expenditure in the future. This plan, finalised in January 2021 by the three parties, is due to be released imminently by the DMRE.¹

Mitchell believes that there are several reasons for the retraction of this exploration spend, and these reasons coincide with the challenges that the Junior miners have been experiencing for some time now and cited by Fogwell too.

A transparent Cadastre system

South Africa is lagging behind other countries like Botswana, Namibia, Zambia, and Mozambique who have all managed to set up functional online cadastre systems, in line with corporate governance.  These systems allow investors – at the touch of a button – to access a log of properties in a country, specifying mining and mineral reserve information, such as who holds the mining rights where and for which commodity, where a right’s borders are and the expiry date of those rights. This forms the cornerstone of good mineral resource management in a country. The DMRE acknowledged some time back that the SAMRAD application system is dysfunctional. Mining rights and prospecting rights are processed largely by hand and delays of up to three years on the granting of mining rights and prospecting rights have been the result. “By our calculation, having looked at the number of rights backlogged in the process during 2020, it is estimated that between R30 and R40-billion in investment has been locked up because of the time it has taken to grant prospecting rights,” says Mitchell. This obviously impacts the Juniors and makes investors more cautious.

“This sector needs more innovative support to grow at a faster pace.”

He notes however that there has been a positive move in the right direction in that the DMRE had put out an RFP (Request for proposal) mid-year 2021 for a cadastre system. However, the concern is that the RFP seems to be a request for a bespoke model. Why reinvent the wheel when there is already a backlog? There are a number of local existing South African commercial solutions that have been used all over the world that could offer a fully functional system in a much shorter time frame and at lower cost. The costs and the timelines of a completely new system are of concern. Mitchell stipulates however, “It is too early to pass judgement, as the process is not yet complete.”

 Tax incentives and benefits

Proposed tax incentives and benefits are a second solution to the current lack of investment. The Minerals Council proposed a flow-through share scheme solution in 2020 –a successful Canadian model – which ensures that the tax incentive flows back to the investor immediately. “This becomes the motivation to invest, and the investor does not have to wait for projects to come on stream to get the tax benefits. The Junior miner in this instance benefits from a fast-tracked investment but forfeits the tax incentive. This solution is what led to the revival of Canadian mining industry,” says Mitchell. “We presented this concept to Treasury, but we still don’t have a go-ahead”.

On the other hand, Fogwell points out, “When looking at Pan-African expansion you tend to see a major contributor not being tax incentives as such, but rather dual tax treaties, which I believe is one of the main reasons you see countries like Mauritius attracting mining investors.

“More than tax incentives, investors want to be able to expatriate their funds simply – with growth at a clear, simple, understandable taxation level. That is where a country like Mauritius will be overtaking us soon in creating investment opportunities for miners, I know of at least 10 Pan African miners that have set up shop in Mauritius instead of in South Africa. Mauritius is not a tax haven – instead it has a discounted tax rate.”

Black economic empowerment (BEE)

Policy stability is imperative to attract investment and for high-risk exploration to flourish – this is a third issue that must be addressed in South Africa specifically. The Mining Charter is currently under review for this reason. “The issue of black economic empowerment in exploration needs to be clarified. The request from the Minerals Council has been that exploration rights be exempt from section 2D of the MPRDA (BEE requirement), whereby 30% of a project must be black owned. The Minerals Council has requested that BBB-EE kicks in only after exploration is concluded and once production starts. However, this remains unresolved. Clarity would help to attract investment,” says Mitchell.

Fogwell adds to this, saying, “BEE, localisation and the striking culture in the country are all impediments to overseas investment. A smaller Junior miner is heavily dependent on service providers to provide skilled services and due to lack of capital these are very price sensitive. Very often localisation results in services charged at a premium, and not necessarily at the right quality. This is a very real challenge for a small mining operation.”

 

Whereto from here

Despite all of the challenges facing the Juniors in Africa, the first undeniable advantage for the entire industry of late has been the commodity boom that has re-energised the industry, according to Fogwell. He says, “As an industry we feel the upsurge in commodity prices – especially in metals that support the green industries – holds fantastic opportunities for junior miners.”

“Junior miners are generally good at operating at lower costs and tight margins that may provide great opportunities in the market for so called “borderline” mines and shafts and taking calculated risks in commodities with higher volatility in price like copper, nickel, manganese, cobalt, chromium, graphite, molybdenum, zinc and rare earths.”

Mitchell adds, “There are great opportunities on the horizon with the rise of new 4IR technologies and renewable energy demand globally and the minerals required for the production of these such as platinum, chrome, manganese and copper.” He further emphasises, “If these deposits are smaller, and therefore suitable for junior mining exploration, offering Junior miners new project potential, quite a few of our members are 100% black owned companies, and it’s a great entry point to the market for these juniors. A cadre of tech entrepreneurs is rising in the industry – and with support – they could add great value to the economy with real transformation.”

Fogwell adds, “In Africa it is vital that mining companies understand the need for responsible community leadership and corporate citizenship. Proper communication with communities and uplifting their local spheres is pivotal to providing stability within the industry. In turn, political leaders across the continent must create an environment to draw in responsible miners instead of short term ‘raiders’.

Nhlengetwa says, “There is a great potential in junior mining. But the rise of junior mining will suffer a stillbirth if the key policy makers, investors, and service providers are not included in the development of the sector. Junior mining is about more than entrepreneurs trying to take up space in the mining industry, but also about creating means for the mining industry to empower the African people by allowing them to enter the arena too. Mining houses whose head offices are based offshore must not take precedence over the African entrepreneur who has means to enter the industry.”

In conclusion, Hayes adds, “My greatest opportunity in the mining industry in South Africa came when changes in South Africa’s MPRDA broke the stranglehold that big mining majors previously held over the bulk of the country’s mineral rights, allowing juniors like myself to get a foot in the door. It enabled me to get going on my first operation as a small miner with a single quarry covering just 1.5 hectares – it does not matter that you start small, it matters that you start. Start by doing what’s necessary; then do what’s possible; and suddenly you are doing the impossible.”

Reference:

1. ¹. At the time of publication the MCSA released a statement on 13 April 2022: “The Minerals Council South Africa welcomes the publication of the Exploration Strategy and the Exploration Implementation Plan documents by the Department of Mineral Resources and Energy (DMRE).
   The Minerals Council will study both documents to analyse and understand what the DMRE has changed since the Minerals Council, the Council for Geoscience and the regulator started negotiating the Exploration Implementation Plan in 2020.
   While we have early concerns with the quality of the drafting of the Exploration Strategy for the Mining Industry of South Africa, we also note there are numerous changes to the draft Exploration Implementation Plan that was agreed to in January 2021 and which we need time to examine and understand before we are able to comment.
   With South Africa ranked for the first time in the 10 least desirable of 84 global mining jurisdictions in the Fraser Institute’s Mining Companies Survey 2021, as measured by the Investment Attractiveness Index, the mining industry needs investor-friendly regulations and policies to ensure sustainable, inclusive growth to benefit all stakeholders.
   One of the most urgent matters for the DMRE to address is the rapid implementation of a transparent, functional, corruption-free, online cadastre system to replace the failed SAMRAD system that has stymied exploration, expansion of the junior mining sector, and growth of the South African mining industry. The Minerals Council and its members have offered financial and technical assistance to the DMRE to urgently implement a readily available, internationally proven, and off-the-shelf solution.”

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