JOHANNESBURG - Obtaining a mining licence is the single biggest obstacle to progress of South Africa's junior mining sector.
This is according to research released yesterday that was commissioned by the Junior and Emerging Miners’ Desk of the Minerals Council SA, formerly known as the Chamber of Mines.
The Minerals Council said that it was unclear if the delay was caused by junior miners’ inability to comply with the Department of Mineral Resources and Energy requirements or if the delays were due to inefficiencies at the department.
“The greatest concern for respondents is obtaining a mining licence once they have completed their feasibility studies. The survey did not probe the reasons for this, and it may be that the juniors are failing to provide the necessary documentation of the standard required for the authorities to issue the licence. This is the area where 41percent of respondents found it difficult to proceed,” said the report.
The survey results, which were finalised this month, showed that apart from the general regulatory environment, junior miners had highlighted the Mining Charter requirements as the second-largest challenge.
“The concessions made by the Minister before finalising the Mining Charter are welcomed, yet the junior sector is asking for much more to be done for them to optimise their businesses,” said the report.
Mineral Resources and Energy Minister Gwede Mantashe gazetted the third version of the mining charter last September in a bid to address regulatory uncertainty.
The charter stated that a mining right holder must increase its black economic empowerment shareholding to 30percent from 26percent once-off or progressively within the 5-year transitional period.
The report said 71percent of respondents in the survey wanted funding partners who exit after a fixed period, and 59percent of respondents indicated that they did not want to sell an equity stake in their project as a funding option.
“Juniors showed a low appetite for partnering with 'big brother' in government and blue-chip mining houses, and no appetite for non-mining partners. They showed some appetite to partner with private mining companies, with 18percent of respondents willing to consider this,” said the report.
Funding remained a major problem for juniors, as South African commercial banks had steered clear of junior miners, sometimes bluntly refusing to engage junior miners, said the report.
“Junior miners do not fit the banks’ risk profile and risk appetite,” the survey said.
The number of companies that transition from a junior exploration to a junior mining company and, ultimately, becoming a major mining company, was very small, because many junior mining firms never go into construction and actual mining. Their goal was to develop a mineral deposit to bankable feasibility level and sell it off to a major.
“This model is often associated with juniors listed on stock exchanges in Canada and Australia. In South Africa, the research shows a significant difference: Junior Mining Companies are mainly smaller producers,” it said.
Junior miners are companies operating mines generating up to R500 million in annual revenue.
Of the 17 participants in the survey, 47percent were small companies with revenues below R5m a year and salary bills below R1m a year.
Junior Miners experienced a very tough year with the majority of companies in a loss-making position. Only four of the 17 selected companies showed a profit.