JOHANNESBURG (miningweekly.com) – There are many ways for entrepreneurs to enter the mining industry, including as project developers, service providers and product suppliers – all of which hold great opportunities and challenges, states mining investment advisory company MX Mining Capital Advisors director Dr Mike Seeger.
The fundamentals for being an entrepreneur in mining project development, he says, are the same as for all other operators, which is to ensure they have a viable business case with a market for their products or services. For mining projects, this includes having all permitting in place, a strong team, a completed definitive feasibility study, a buyer for the commodities, an environmental management plan and social sustainability, all leading to “attractive” returns for investors.
“When I co-founded mining contracting company Injula Mining Operations, in 2004, the ways of raising capital for the venture were very different to now,” Seeger tells Mining Weekly.
Injula mined 1.5-million tons of thermal coal a year for six years on behalf of coal miner Anglo Coal for State-owned power utility Eskom with an opencast mining fleet and a staff and workforce complement of 185 people. In addition to contract mining, the company developed the Kangala coal exploration project, in Mpumalanga, which led to the establishment of coal miner Universal Coal.
Seeger says, 10 to 15 years ago, mines only looked at raising debt and equity finance through banks and shareholders respectively. However, he notes, in the current economic climate, these avenues are largely unavailable and alternative models need to be sought. These include offtake finance, streaming and royalty finance and vendor financing from mining and processing contractors.
Seeger comments that mining companies’ business cases will have to be based on these types of financiers to ensure the required finance can be raised. “Entrepreneurs must also be willing to be flexible and consider diluting their ownership stake as the project develops, as it is highly likely they will need to cede shareholding to attract more capital during the course of the life of the project,” he adds.
INSIGHTS FROM INDUSTRY ENTREPRENEURS
Mining Weekly spoke with a selection of local mining entrepreneurs to learn why they entered the mining industry, their experiences to date, what they have learnt, their advice to other aspiring mining industry entrepreneurs and their plans for the future.
Matodzi Nesongozwi, 41, CEO of junior iron-ore miner Manngwe Mining – which owns the Assen iron-ore mine, near Brits, in the North West – says the dream to open his own mining company started from a young age.
“I always wanted to work for iron-ore miner and steel producer Iscor (today known as ArcelorMittal South Africa) to the extent that I wanted to own it. I had a very close affinity with Iscor as it provided a roof, literally, for my family in Venda, Limpopo, when we were still poor,” he states.
Nesongozwi recalls his father, who used to work for the Transvaal Provisional Administration as a street cleaner, cycling from Dzanani to Louis Trichardt (Makhado) every day to work, bringing home in his bicycle’s basket one or two bricks every day with which he eventually built a two-room house.
He recalls that, in the 1970s, black people were not allowed to buy corrugated zinc as roofing for their houses. Therefore, Nesongozwi’s father had to ask his white superior to buy the corrugated zinc for him in return for doing gardening for him over the weekend.
Nesongozwi’s father managed to finish the house after a couple of years by using the corrugated zinc as the roof on which was written ‘Iscor’. “When my father would ask me what I wanted to do, I would tell him that I wanted to work for Iscor because it had [provided] a roof over my head. I would just sleep on the floor and look at this roof with ‘Iscor’ embossed on it and dream of working for this company.”
Nesongozwi achieved his goal of owning an operating mine with the official opening of Assen in April. Assen currently employs about 220 people on site, including contractors.
CHALLENGES AND ACHIEVEMENTS
Nesongozwi remarks that a major challenge for entrepreneurs entering the local mining sector is that the industry is not receptive to new players, as existing operators feel that new entrants will most likely “encroach on their market share”.
“It is not even a race issue, but an economics matter. I have been very fortunate that companies such as diversified mining majors Anglo American and Glencore embraced me and were even willing to go the extra mile in mentoring me,” he states.
Further, Nesongozwi believes that the South African government should create a more enabling environment for entre- preneurs to enter the mining sector.
“Our system is capitalist, with policies that are more socialist. I call myself a social entrepreneur rather than a capitalist entrepreneur. Government should rather create a fund to assist during the exploration phase, which is more expensive than starting a mine, because there is a higher level of unknowns than when you start a mine,” he remarks.
Nesongozwi also points out that one of his crowning achievements over the course of his 20-year career has been successfully assisting in the development of six mines across South Africa.
These mines, he highlights, were all built from scratch and not developed from an existing operating mine. Additionally, Nesongozwi notes that the most fulfilling achievement for him is to be able to “share the little that I have” with those that are less fortunate.
“I have built a school for kids with disabilities in my home village. The school now accommodates over 100 kids with different disabilities. Just to see their smiling and happy faces makes me want to work harder for them.”
Nesongozwi says his ultimate ambition is to build a pan-African mining company. He points out that he is already involved in the construction of a manganese mine in Namibia and has interests in gold and chrome operations in Zimbabwe.
“I also would like to look at opportunities in Tanzania, the Democratic Republic of Congo (DRC) and West African countries,” he adds.
VIEW FROM ABROAD
Mining Weekly also spoke with investment company Menar Holding executive chairperson Vuslat Bayoglu about his experiences as an entrepreneur in the local mining industry.
Originally from Turkey, Bayoglu, 43, has been in South Africa since 2001 and became involved in the South African coal mining industry in 2003.
Menar owns coal mining companies Canyon Coal, which has operations in Mpumalanga, and Zululand Anthracite Colliery (ZAC), which is based in KwaZulu-Natal.
He notes that government’s broad-based black-economic empowerment (BBBEE) policy was what drew him to the sector, despite not being black in terms of BBBEE criteria.
Bayoglu explains that there are many black businesspersons who want to enter the sector, but they lack the finances to do so. “We had the capital and our BEE partners brought their knowledge of local conditions, which combined well to ensure we could form a mining company.”
Bayoglu believes that his story should serve as an illustration of what can be achieved when white and/or foreign nationals work together with black businesses to assist in ensuring the transformation of the South African economy.
He is proud of what Canyon and ZAC have achieved to date. Bayoglu points out that, since taking ownership of ZAC in September 2016, the company has been able to make its operations profitable, whereas it had been making a loss for three consecutive years prior to the takeover.
“We are looking at all the opportunities in the South African coal industry and we carry out due diligences to enable Menar to establish if it is a good opportunity for us to . . . acquire it,” states Bayoglu.
Canyon currently has a 700-million-ton reserve base and the company is focused on developing these reserves. “We also would like to start supplying [State-owned power utility] Eskom with coal,” he remarks.
Previously, the company did not intend to supply the utility with coal because the quality of its coal was too high for Eskom use; Eskom uses coal with an average calorific value of between 20 MJ/kg and 23 MJ/kg, while the mine was producing coal of about 27 MJ/kg. However, Canyon currently does have lower grades of coal that are suitable to be used in Eskom’s power stations.
With regard to ZAC, the company aims to develop new anthracite deposits, as Menar would like to develop a new project at the mine over the course of the next two years.
WORDS OF WISDOM
Nesongozwi says a lesson that he has learnt since becoming an entrepreneur in the mining sector is that failure is part of the fabric of business and, as an entrepreneur, one should embrace it and find a way out of failure to create major successes.
“While it may seem that the key word for entrepreneurs is ‘courage’, it is not. The essence of [entrepreneurship] is to be able to look to the future. The courage of the person incapable of future projection can, at most, result in gambling.
“Are we talking enough about the future in South Africa? No, I do not think so.
“We discuss the past mostly. Naturally, we talk about present conditions, whereas speaking about the future exhausts many of us,” Bayoglu adds.