JOHANNESBURG (miningweekly.com) – Venture capital incubation fund initiator Pearl Gray Equity Partners is targeting South Africa’s small-scale gold mining space.

Pearl Gray, a reform of the Gray Family trust created in the late 1990s, is a family investment firm based in Pretoria, with activities in Delaware, in the US.

“Our strategy is very simple. We're looking for operational companies in the mining industry and we’re looking to partner with them as a mining financing partner, which will eventually provide them access to capital and we’re looking at getting companies to do things the right way,” Pearl Gray Equity Partners managing partner Steve Booyens told Mining Weekly in a Zoom interview. (Also watch attached Creamer Media video.)

“What we’re essentially doing is bringing venture capital concept into the mining space. We had a little bit of a look at the small-scale mining space and it looks a little bit distressed in my opinion, with regards to legislation, the lack of knowledge of really how to access capital, of how to access proper individuals who will provide operational skills, and that’s essentially what we’re doing.

“We’re going to have skin in the game as well. So, what we’re essentially doing is working with small-scale mining companies using a bit of our money and being nimble in a way where we are going to source additional funds as well.

“We’re a family investment office, so we’re not a big investment company. Using the word nimble again is really just a way for us to enter the mining space, which is profitable, and I mean this is Africa. It’s always been a good industry and I believe here’s a lot of potential,” he said.

Small-scale prospective miners wanting to obtain licensing will be assisted: “We’ll actually fund that out of pocket if we believe that a company has potential and from there on to realise the operations, we’ll go and raise additional funds.

“Obviously, we’ll have to do a background check. We all know the background of small-scale mining and the sort of theft that's going on, so we’ll obviously background check, we’ll look at expertise in terms of qualification or exposure to previous projects. Also, there needs to be a potential for value add; bringing in the right individuals, bringing in a little bit of capital and really amplifying the company,” Booyens said.

In instances were geological, operational and other input is required, the company has a network to draw on.

“We, as a company, have a large network and we know how to spot an individual with substance . . . and we’ll typically work with a human resources company to get the correct individuals to do what is required,” he added.

GOING FOR GOLD FIRST

Gold is the metal on which Pearl Gray has its initial sights set: “Looking at the markets, appetite for equity is driven with gold, and then looking at gold itself, it’s got a real scarcity.

“It’s not something that has elasticity and where you’ll be easily taken out as a company and it’s got a future. There will always be an appetite for equity in gold. So, gold is just what we’re going for to start with."

South Africa is the chosen initial investment destination: “We’re starting off as an incubation fund to test out the waters. Our knowledge is really financial and looking at assets and we feel that starting off with just South Africa is the appropriate way to start. Obviously your different jurisdictions have got different legislation. I’d like to contribute to South Africa,” Booyens said.

THREE-YEAR TIMELINE

“In terms of timeline, I’d say we’re still familiarising ourselves with the industry completely by working with the right companies in mining and I’d say within the next three years we would have more or less done a robust analysis of whether we will carry forward, let’s say, listing on Toronto Stock Exchange-Ventures (TSX-V), doing a GPLP raise. We’ve got a lot of enquiries about individuals who lack funding but for us it’s also about picking the correct projects,” he added.

Mining Weekly: The Economic Transformation Committee of South Africa’s ruling African National Congress has put out a 30-page document stating that small mining companies must be encouraged to list on the Johannesburg Stock Exchange (JSE) and exploration must be incentivised. Do you see any movement at the JSE yet that could accommodate the small mining company listings in the way that the TSX-V does?

Booyens: The current landscape for raising public equity is very much geared towards blank-check raises, meaning that they are raising public capital for companies that are not producing any revenue, that do not have any assets and the money would be typically put into an interest-bearing account and the company would have a two-year window of purchasing assets. This has been very popular in Canada, but you’ve got to ask the question, when’s the last time that you’ve seen a successful initial public offering on the JSE? Sure, there have been blank-check raises but that’s been at a very low amount. So, I’m not really an advocate for listing on the JSE. I’m rather looking at going towards TSX-V. Being an actual Canadian company and I know what the comments are going to be. No, you’re just a Canadian company looking to steal our resources but actually what it allows you to do is that if there are any legislative issues in South Africa, you can take it to the Canadian courts, so that will resolve that. As you know, there are a lot issues with crime in small-scale mining that just go unresolved. Second of all, there’s a large appetite for equity. So, you’ll actually be rolling out these projects and you’ll actually be paying taxes (to the South African government) on these projects. That’s the way we see it and we're not really looking at the JSE at the moment. We’re still testing the waters and we’ll still have to see how the TSX-V goes over the next few years, how blank-check raises go over the next few years, and then we’ll decide.

Mining Weekly: Do you have expertise within your company to manage such listings?

Booyens: We’ve got the expertise. The thing is this: if you’re looking to list on a foreign exchange, you have to have someone local and you’ll need someone on your board that has adequate mining experience at operational level. It’s also very agile whether you get accepted or not. We typically won’t list a company, if we go down that route, the reason I mentioned TSX-V wasn’t really related to listing small-scale companies in the future. It was just to reiterate the fact that there’s a high demand in equity for mining projects, and it’s the longer-term vision, after we’ve tested the waters, and just to understand the landscape of South African mining completely. 

Mining Weekly: You have launched an incubation fund in an attempt, you stated in a profile, to be the driving force behind the resurgence of the local mining sector. Can you give us more insight into that statement?

Booyens: We're looking to partner with them as a mining financing partner, which will eventually provide them access to capital and we’re looking at getting companies to do things the right way. There have been a lot of issues with theft in artisanal mining, illegal mining, and we’re just looking to essentially setting up an infrastructure in South Africa which allows for everyone to do things correctly, with adequate capital and having the right individuals being provided with opportunities. We’re looking to bring back that factor of where you have a family that essentially work in mining over three generations – the granddad, the father and the son all go and work on mines, which has not been possible in a lot of communities. Doing good business from our side and also just creating jobs and contributing to the South African economy.

Mining Weekly: What would your company do in the case of a small-scale miner who has discovered a gold orebody wants additional help?

Booyens: We’ll have a flexible discussion and look at the stage of the project, the potential of the project financially and working with our operational and geological partners to see what value we can both add and decide whether it is a project that can provide monetary benefits for both parties as well as investors.

Mining Weekly: If it is beneficial, will you take equity in the mining company and sit on the board?

Booyens: We’ll typically have to be skin in the game first, putting in a bit of our money beforehand, and we’ll need to take equity in the company first. We’re not providing a financial service, where we’re charging some sort of a flotation price and then raising equity for the company. We’ll hold equity in the company, which will be leveraged once we achieve certain targets.

Mining Weekly: Once you’ve achieved those targets, do you then have an exit strategy?

Booyens: You have various stages to fund raising and mining and as the company's valuation goes up, the investors, including us, can exit, signing off equity in the company. If the company grows large enough, you’d have to consider going public. Yet again, it’s an agile situation. Raising capital isn’t easy and it would depend on what stage you're at.

Mining Weekly: But at the moment, you only see the Canadian TSX-V as being appropriate currently?

Booyens: That’s if you have to go public. I’m not aiming to do that. I wasn’t mentioning that in terms of an exit strategy. I mentioned the TSX independently, just as an alternative and to illustrate the low barriers to capital these days, the low barriers to listing publicly. That would be more with regards to larger scale mining. As a potential exit strategy, let’s say now we’d like to exit the project eight to 12 years from now and possibly sign off your equity to an external party. Obviously, if you’ve then got a brownfields project, you've got an existing operating company, you can sell it off to a big private equity firm. That would be your best exit strategy.

Mining Weekly: If I came back to you in five years’ time, what would you hoped to have achieved?

Booyens: Hopefully, we would have discovered what the cost benefits are exactly. We would have progressed in the mining industry and deemed the South African mining industry as the appropriate jurisdiction, and we would be of a size where, being nimble, we would have leveraged our equity positions and companies to enable us to set up big and large-scale mining and exploration.

Mining Weekly: How long has Pearl Gray Equity Partners being involved in the mining sector? What has it been involved with ahead of being in mining?

Booyens: We’re in the generation of the company that used to be known as the Gray Family Trust, with traditional investments in public equity and real estate. With all due respect to the second generation, not much has been done with the company. I’ve now come in as co-head of the company and we just renamed it as Pearl Gray Equity Partners. The company just consists of three people and a load of asset managers and advisers, and what we’re trying to do now is bring everything under one roof and scale up to about 15 to 20 people in 18 to 24 months from now. We haven't done anything in the mining space apart from research into which are the best assets and the best sectors, is what we’ve identified. We are purely financial. The reason why we’re starting with incubation and why small-scale mining is because of our limited participation in the mining sector, testing the waters and going from there.

Mining Weekly: Where is the main corporate base of Pearl Gray Equity Partners?

Booyens: We have office space in Sandton for meetings and then we operate out of Pretoria, which is our base. We have a presence in Delaware, just because we’re invested in a couple of companies in the US, and we’ve got an alumni network in the US. We’re working on a couple of things in the US to bring in capital.

JOB GENERATION ASPIRATION

“We’re launching this incubation fund. From our side it’s purely just to test the water as we step into the mining industry in South Africa. We believe the mining industry has got a lot of potential but the financial and operational infrastructure isn’t set up correctly at the moment. Enough access to capital, access to expertise and getting legislative issues into place.

“We’re looking to create jobs, were looking to get companies the access to the capital and the expertise that they require and in a couple of years’ time, we hope to use our nimbleness and reach a level in the South African mining space which would be respectable and would have set a platform for us to kick on.

"Let’s hope we grow in the next few years, I’m pretty sure we will. We’ve had a good look at the mining space in South Africa. Incubation is certainly a fund that’s being applied in the first world and we’re looking to bring it through to South Africa,” Booyens outlined to Mining Weekly.