Johannesburg - Junior mining firms have a better opportunity to raise equity through the JSE, which is being prepped to play an increasingly important role in providing new investment for projects on the continent.
Speaking yesterday ahead of the Invest in Mining Indaba to be held in Cape Town next week, Rajat Kohli, the global head of mining and metals at Standard Bank, said there was a pool of capital to be utilised by junior mining firms. “We believe the JSE will play a more important role in raising capital in Africa, down the road. We see an opportunity for mining companies to undertake a secondary listing on the JSE.”
Glencore Xstrata, one of the four biggest diversified commodity producers, listed on the JSE in November last year, spurring perceptions that the company with a primary listing in London and a secondary listing in Hong Kong was casting a vote of confidence.
Kohli believed there would be more listings on the JSE. “I think we are looking at companies raising between $100 million (R1.1 billion) and $250m.”
However, mega deals are unlikely to feature in local and international mining transactions amid the sharp decline in mergers and acquisitions (M&A) activity seen last year as firms shelved expansion plans and focused on cutting costs.
The weak commodity outlook, coupled with challenges in the debt market, had affected global mining liquidity negatively, Kohli said, adding that shareholders were now setting the agenda and had been demanding companies deliver returns through dividends.
Mining equity value declined by a significant 30 percent to 40 percent last year on average, and in some cases by between 70 percent and 80 percent. Equity is an important measure of the value of an entity.
Meanwhile, prices of commodities, including gold, fell between 10 and 30 percent last year.
“This year we are hoping for an uptick in M&A, but there will not be mega deals. It is becoming a challenge to raise capital,” Kohli said.
In 2012, Glencore agreed to buy Xstrata for $41 billion in shares in the world’s biggest takeover, which was finalised last April when Glencore Xstrata was established.
One of the questions that chief executives will have to answer is whether it is better to build or buy assets.
“Given the price outlook, it will be cheaper to buy than to build. That will accentuate M&A activity,” Kohli said.
Private capital investment had been substantial, with $10bn capital available to invest into mining. This had flowed into entities including sovereign wealth funds, private equity funds, hedge funds, family offices and trading companies, he said.
“The equity taps have been turned off. You have to have an exceptional project to raise capital.”
The continuing wage strike at the biggest platinum producers will add to investor jitters over South Africa. About 70 000 Association of Mineworkers and Construction Union members downed tools last week at Anglo American Platinum, Lonmin and Impala Platinum to demand a R12 500 minimum wage, which the companies have previously said is unsustainable.
Kohli repeated that the strike would further hurt South Africa’s investment prospects. “There is no doubt that foreign direct investment in South Africa has slowed down. If you look at shareholders with assets in South Africa, it has declined. Foreign shareholders are being replaced by South African shareholders.” - Business Report