STEADY IMPROVEMENTS 2017 has already seen some welcome recovery in commodity prices, but the sustainability of recovery is uncertain
Photo by: Duane Daws
Junior mining companies have certainly been through a tough time of late. Some of the pain has been self-inflicted, some has been a long time coming and some of it has been pure bad luck, says Junior Indaba chairperson Bernard Swanepoel.
“That is the way cycles go and the world will hopefully soon discover that it cannot do without junior miners. So, how do we make juniors great again?” he asks.
Swanepoel notes that 2017 has already seen some welcome recovery in commodity prices, but the sustainability of recovery is uncertain and the extent of it not consistent across commodities.
He remarks that “investor amnesia” has not quite set in yet; therefore, although the hunt for yield is greater than ever, the pain suffered by many investors has made them “allergic” to the junior mining sector.
Swanepoel states that, in addition to this, the fact that regulatory requirements are ever more stringent sees the junior mining sector looking at a fairly grim picture.
“How then do we as an industry ensure that those juniors that survived the commodities downturn not only survive but also deliver the superior returns that they were designed for?” he questions.
Swanepoel comments that, firstly, the sector needs to learn the lessons from the most recent commodities downturn. “In the hype of a supercycle, downside risks are easily downplayed,” he points out.
Professional services firm Venmyn Deloitte MD Chris de Vries advises that “a thorough understanding of the technoeconomic merits of a project is fundamentally important and flexing technical, cost and price parameters to pass investment hurdle rates is simply irresponsible”.
He says that it is clear that some mining projects should never have been pursued and other assets, although good, are not designed to carry significant amounts of debt. “Let us not make those mistakes again,” urges De Vries.
Secondly, he says that the industry needs to rediscover the role of juniors in the greater mining industry. De Vries emphasises that exploration and project development is the life blood of junior mining, adding that the entrepreneurial spirit and corporate agility inherent in junior mining are what allow it to be best at this.
“It is not a licence to cut corners. Rather, junior miners should focus on building lean operating models that are best-in-class when it comes to deploying technology and innovation in finding projects, exploring and assessing them, designing mines and developing them,” he states.
De Vries says that the third element is that this sector needs to earn back its reputation. He comments that “deservingly or undeservingly” junior mining has become a swear word for some investors, regulators and communities.
“Junior miners need to demonstrate their long-term viability and dedication to their social licence to operate. This requires a responsible and patient view on project returns. In the long term, this will pay off in the form of better access to cheaper capital, more accommodating regulators and friendlier communities. Let us make juniors great again!” concludes De Vries.
Venmyn Deloitte is a long-standing supporter of and adviser to the junior mining industry and returns as a partner of the 2017 Junior Indaba, where De Vries will be among the conference’s leading speakers and will join in the debate on these topics.
The Junior Indaba takes place from 7 to 8 June at the Johannesburg Country Club, in Auckland Park, Johannesburg.