More than 14 000 South Africans now own shares in the discovery and development mining company Orion Minerals, which is reflective of retail investment that can be stimulated in South Africa to support essential local minerals exploration.

What is also extremely promising is that the dual-listed Orion is trading a much higher volume of shares on South Africa’s JSE than on Australia’s ASX.

In the year to date, Orion has traded more than 600-million shares on the JSE and in the same period 450-million shares on the ASX.

With only about 23% of Orion stock on the JSE, the local bourse has traded much higher volumes on a pro-rata stock listing basis than the more exploration- celebrated ASX.

“It shows that there is appetite in the South African market. It’s absolutely astounding that over 14 000 South Africans now own shares in Orion, from sizeable chunks down to small little bits and pieces,” Orion CEO Errol Smart said in a Zoom interview with Engineering News & Mining Weekly.

There is thus retail gusto for local exploration investment portfolios and, moreover, it is cheaper to trade stock on the JSE than it is to trade stock on the ASX, with trading a block of shares on the JSE a mere fraction of the price of trading a share block on the ASX.

“It’s cost-effective and the average individual and middle-income earners can go to their bank manager down the road in Prieska town and request that R2 000 worth of Orion shares are bought, and it isn’t cost prohibitive to do that,” said Smart.

“The JSE provides a very useful platform for that level of trading. I wish we could convince more fund managers and wealth managers to be advising their clients to invest in exploration.

“Unfortunately, it is a high-risk portfolio and it isn’t suitable for everyone and I definitely wouldn’t ask any granny and grandpa to put their money into the exploration game.

“But it is a very important small portion of a portfolio because it has got that opportunity to give multiples of return, unlike many other investments that give a 10% or 12% yield.

“An investment in an exploration stock is something that gives you hundreds of per cent, if it works,” he added.

Australian Pension Fund Investment

At the Australian end, one of Australia’s pension funds, a construction pension fund, has invested in Orion.

“They’ve taken the decision that they can bring in their competent people to do an evaluation and they invest on that basis. But it’s a small chunk of their money. It’s a minuscule fraction of a per cent of the money that they invest every year, but for Orion, it makes all the impact.

“That’s what happens in Australia. You’ve got these monster pension funds and each one of them invests half a per cent. When they hit the jackpot, that jackpot gives them a yield of multiple per cents. The reality is that, in exploration, very many failures occur. They have to be more selective. It’s harder work and they have to decide on whether there is a return on investment for the fund manager.

“That’s what we need to see here in South Africa. The fund managers must decide whether there is a suitable return on investment and whether they should invest their time and energy to get the competent advice so that they know that they are making good investment decisions,” said Smart.

Engineering News & Mining Weekly: How have you managed to attract such a large number of retail investors on the JSE?

Smart: Largely, it’s because we fill a gap. There isn’t anyone else that provides an exploration development investment opportunity for base metals in South Africa. We simply have a first-mover advantage. It is a dual listing and our primary listing is the Australian Stock Exchange, so we’re predominately regulated by the ASX, although we have to keep to the JSE rules as well. Although most of our money, since the 2017 JSE listing, has actually come from Australia and Europe, a little bit of money has come from South Africa and it’s a growing amount. Every time that we do a placement, there’s a growing volume that actually gets taken up by South Africans. But we’re seeing more and more that South Africans are going to their wealth managers and their bank managers and saying, listen, I’ve heard about this company called Orion. Please buy me a couple of thousand rands worth of shares.

What more can be done to encourage junior mining in general and to get more of the Orion-type companies on to the JSE?

It’s a well-known and sad fact that our regulatory circumstances in South Africa are just not conducive to junior mining. It just takes too long to acquire a prospecting right and then too long to trade it and to get a Section 11 approval when you need to change ownership. It’s not an investor-friendly circumstance. The big question on the management of mineral rights and mineral rights portfolios in South Africa, and this debate that has been ongoing for more than a year, very publicly now, is about the need for a mining cadastre and a set of solutions, which are all encompassed in a mining strategy document that we prepared for the Department of Mineral Resources and Energy (DMRE).

We came up with all sorts of solutions, including tax incentives that are non-erosive to the South African Revenue Service. We made a presentation to the National Treasury. It hasn’t gone any further. We need to reignite that. We need to get our mining title management in South Africa working properly and then we can get tradable shares in companies and then they can go to the JSE and other stock exchanges. But you’ve got to get economies of scale to get trading on a stock exchange. The concept that you can go and raise a million rands on a stock exchange does not happen. Investors are not going to invest a million rands. You’ve got to give them a sizeable chunk investment.

It needs to be hundreds of millions of rands to make it worthwhile and perhaps that is also what Orion brought to the JSE – an exploration company with some scale to it. Where we are trading at the moment, one-and-a-half billion rands, we could be trading at much higher value, but when we first came to market it was small but at a still-sizeable market cap of about R400-million that we came to the JSE with. But I think if it was any less than that, we wouldn’t have got any attention. In fact, we didn’t get much attention for the first year.

To make it worthwhile to list, how much money needs to be raised when listing?

The actual cost that you pay to the stock exchange is a relatively small number. But to do all the compliance and to be audited by a tier-one or tier-two auditor and to keep all your King compliance almost requires one or two expensive executives to be employed on your payroll, just to look after compliance. That’s right in a number of ways because, without compliance, you can’t make a company generally investable on a stock exchange. The JSE ensures that you are compliant with the rules of the game and that is a protection mechanism that’s put in place. But, as a result, you get an economy of scale and I don’t think anyone should list on the JSE if they are going to have a market cap of less than R300-million to R400-million.

They also have to have the expectation that they will need to raise capital in the order of a billion rands within a two- to five-year timeframe. Without that, they are just never going to get traction, and it’s just not cost-effective. I took a public company from Australia and came to the Johannesburg Stock Exchange with a South African portfolio of assets and it’s partially worked for us. Every CEO of a listed company in the world likes to see higher value and the South African discount that we all have to deal with is unpleasant. We need to overcome this whole South African discount concept.