Mining engineering firm DRA Group will act as a technical partner to mining-focused venture capital company CCP 12J Fund in respect of engineering and outsourced operations and maintenance services.
DRA will also be a principal investor in CCP 12J, which was established in terms of Section 12J of the Income Tax Act.
Private equity fund manager Stockdale Street, which advises DRA’s largest shareholder, is a co-founder of CCP 12J.
CCP 12J will leverage off DRA’s extensive minerals processing, mining engineering and outsourced operations capabilities and Stockdale Street’s disciplined focus on capital preservation, to make mining-related equity investments in South Africa.
The venture capital company will seek to invest in mining projects that are predominantly related or ancillary to existing mining operations and which meet the criteria of a qualifying company under Section 12J of the Income Tax Act.
Section 12J was established to assist qualifying companies, including junior miners, to access equity finance, while also providing a tax incentive to investors in the venture capital company. All of a qualifying investment into a venture capital company is deductible from the taxable income of the investor.
Former Aquarius Platinum CEO Jean Nel assisted in the development of CCP 12J as a solution aimed at both providing attractive risk-adjusted returns for investors and which will promote capital investment in South Africa’s underinvested mining sector.
Besides the access to the skills and resources within DRA and Stockdale Street, CCP 12J has been able to attract a formidable team of industry stalwarts to senior management and investment committee positions.
Former Keaton Energy CEO and experienced Nedbank corporate investment and mining investment banker Paul Miller has been recruited as MD of CCP 12J, while financial services distribution specialist Mike Clare will head up the company’s fundraising and distribution activities.
DRA has committed an initial R150-million to the CCP 12J initiative.
CCP 12J completed an initial third-party capital raise after a soft launch in February, shortly after CCP 12J received its financial services provider licence from the Financial Sector Conduct Authority and venture capital company approval from the South Africa Revenue Service.
Additional rounds of fundraising will occur over the next 18 months so as to coincide with significant personal and corporate tax payment dates – August 2018 and February 2019.
Nel emphasised that the fund will not generally look to invest in primary exploration, preproduction mining projects or early-stage feasibility studies.
“We plan to earn an attractive risk-adjusted return for our investors by pursuing lower risk ancillary or secondary mining related projects, such as tailings retreatment, dump reprocessing operations or brownfield processing plant expansions, where we can partner with existing industry players and can mitigate as many inherent risks as commercially possible.”
Clare pointed out that Section 12J funds have attracted significant interest from financial intermediaries over the last two years, largely owing to the many attractive investment opportunities being presented by a range of 12J companies.
“We believe that financial advisers need to consider Section 12J investments as a core part of financial planning for the right profile of tax sensitive investor,” he said.
Miller added that a huge amount of work has gone into putting the CCP 12J Fund and team together and that the team looks forward to bringing to market a competitive alternative source of mining finance.