JOHANNESBURG (miningweekly.com) – Most listed mining exploration companies had insufficient funds to keep going and many were heading for delisting by year-end, New Africa Mining Fund II (NAMF II) director Neil Gardyne said on Thursday.
“I’m anticipating that half of them are going to go to the wall,” Gardyne told the GeoForum 2013 conference at the Turbine Hall in Newtown, where he stressed the benefits of being in off-market private-equity funds.
He calculated that 65% of the 1 300 mining exploration companies listed on the TSX Venture Exchange (TSX-V) had $250 000 or less left in their kitties, which was insufficient to keep exploration under way.
Negligible levels of equity capital were being raised on markets and market liquidity had become so poor that significant investors were unable to trade out of their holdings.
Other specialist junior exploration markets like the Alternative Investment Market (Aim) in London and the Australian Stock Exchange (ASX) had also declined significantly.
TSX-V, Aim and ASX markets had fallen 30% in 2012 and 47% in the first quarter of this year.
Nearly 60% of 2013 share issues had raised less than $1-million, which was really fund raising for survival.
What was in kitties was insufficient to pay the salaries of exploration personnel, let alone continued exploration.
Analysts had observed that private capital providers, like NAMF II, and sovereign wealth funds had proved to be superior evaluators of exploration risk.
The backers of the 2.5-year-old, $120-million NAMF II include the World Bank’s International Finance Corporation, the Development Bank of Southern Africa, the African Development Bank, the German DEG, the Dutch FMO and the Swiss Investment Fund for Emerging Markets, with BHP Billiton South Africa having backed NAMF I.
NAMF II is concentrating on early-stage, high-risk but also high-reward projects.
“You can lose money very easily in exploration projects and we have to be very sure where we invest. The only reason we got the second fund going was because we had a reasonable track record in the first fund, where we returned a 25% internal rate of return to investors, even after suffering blow-outs on three of our projects,” Gardyne recalled.
NAMF II is investing in two projects after studying 240 since kicking off in March 2011.
“All we’ve seen are sliding prices in most commodities and difficulty in trying to put values to projects," Gardyne added.
NAMF II is placing even greater emphasis on environmental, social and governance (ESG) issues than was the case with NAMF I.
The original idea of the first fund was conceived at a junior mining conference convened by mining stalwart Richard Linnell at Bakubung, near Sun City, in February 2000.
What became known as the Bakubung Initiative culminated in former Gold Fields CEO Chris Thompson concluding that a venture-capital-type mining fund needed to be established in South Africa to support new mining entrants.
Early finance to set NAMF I in motion was provided by the Chamber of Mines, and after Gardyne and the late Arthur Mashiatshidi won the bid to manage the fund, it was launched in March 2003.
Unlike NAMF I, which was set up as a now-unwound bewind trust, NAMF II has a more classical general partner/limited partner (GP/LP) structure, with the GP partners managing the fund and the LP partners providing the finance.
An investment committee, made up of the GPs plus two independent outside parties, approve NAMF II investments and an advisory committee, consisting of the investors, plays a predominantly ESG oversight role.