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Fraser Alexander’s structured funding offering well received by mining sector

25th November 2016

By: Ilan Solomons

Creamer Media Staff Writer

  

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Mining services and construction company Fraser Alexander’s Integrated Mining Service (IMS) structured funding offering has been positively received by the mining industry, says CEO Velile Nhlapo.

He informs Mining Weekly that the IMS offering has been particularly popular among emerging mining companies and companies with coal-to-power projects, specifically in relation to the coal supply portion of the offering.

Nhlapo says the company’s focus on the coal-to-power sector, specifically with regard to the coal supply portion of the offering, including mine development, mine management, mining, materials handling, coal washing, discard and product handling, is a “medium- to long-term focus”. The reason is that all the coal-to-power projects that the company is currently involved in (two in South Africa, one in Botswana, two in Tanzania, one in Zambia and one in Mozambique) are all two to five years away from producing their first coal.

Currently, 82% of Fraser Alexander’s work is in South Africa and its targeted ratio for South Africa and the rest of Africa is 70:30. At present, the company’s turnover exceeds R2-billion a year.

Nhlapo enthuses that Fraser Alexander’s status as a 100%-black-owned company is “without a doubt” an advantage in relation to mining and processing projects in South Africa. “With regard to growth in the rest of Africa, which is a very strong strategic initiative of ours, we are also finding that being 100%-black-owned is also a positive. However, it is equally important to have a clearly defined localisation strategy and policy, while also seeking to [have]the correct partners in every country that we operate in,” he states.

Nhlapo comments that Fraser Alexander clients enjoy the benefit of selecting from the company’s range of value-adding, outsourced services, either as an individual service, a combination of selected services or the whole range of services under the IMS.

He further points out that the 104-year-old company is also able to offer the full value proposition under its One Fraser Alexander strategy, across the complete mining value chain, where the company oversees the funding, construction, mining, processing and delivery of a product for the client to take to market.

Additionally, Nhlapo highlights that the announcement of Fraser Alexander’s “last-mile funding” initiative in September has created a “huge awareness” of the need for this type of solution for emerging mining companies. This initiative includes, among others, the funding of mine development, such as infrastructure and boxcut establishment at projects that are already at the bankable feasibility study (BFS) stage or “very close” to the BFS stage and which have all the regulatory permits and product offtake agreements in place.

However, he emphasises that it is not Fraser Alexander’s strategy to own equity in mining companies, to own resources or trade in resources. “We are, however, willing to ‘put skin in the game’ through our last-mile funding initiative, as well our BOOM (build, own, operate and maintain) and BOOT (build, own, operate and transfer) offerings with regard to mineral beneficiation plants,” Nhlapo notes.

He explains that, typically, the company’s last-mile funding offering provides R80-million to R150-million in funding. Nhlapo points out that most financial institutions do not want to fund these projects, as they are either too small or too high-risk. However, Fraser Alexander is willing to share in this risk and aims to provide the required funding to assist mining companies.

He says that, in turn, this provides Fraser Alexander with the option to guarantee security of a long-term tenure with the client, as well as provide “the best possible service, instead of only competing with other competition on a rand-per-ton basis”, while also “sharing in the risk of starting up and operating the mine”.

Nhlapo notes that the operating models available in the structured funding offering include a BOOM model or a BOOT model, where the plant or equipment could be transferred to the client.

Industry Outlook
He says that the recent uptick in coal prices has certainly created a very optimistic outlook in the short to near term. “We are very positive about the longer-term future of the market. The fundamentals of most of the commodities that we operate in are good and we expect growth in Africa,” Nhlapo adds.

Further, he states that, following the 2015 Samarco tragedy – an iron-ore tailings dam in Bento Rodrigues, in Mariana, Brazil, collapsed causing flooding that resulted in 19 deaths, many injuries and substantial damage to nearby properties and the environment – there is “without doubt” a need for tailings dam audits and redesign initiatives by mines.

However, Nhlapo says that he would “definitely not” limit the need to only external auditing and possible redesign, but also the need for the professional, dedicated and focussed operation and management of tailings storage facilities for which Fraser Alexander is “ideally equipped”.

He laments that it is unfortunate that 65% of mine risk resides in tailings dams when many mines “place little emphasis” on ensuring that the operators of these dams are experienced and qualified. Nhlapo attributes this to the barriers to entry being “so low” and that, as a result, competition is “so high” that companies adjudicate mostly on price first.

“This is something that the mining houses need to take cognisance of. It is a very technical and high-skill area which Fraser Alexander is fully equipped to handle and has been successfully managing throughout its existence,” he asserts.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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