An Unexpected IPO, A Platinum And Chrome Rumour Mix Up, And Disorderly Politics As Indaba Wraps Up

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An Unexpected IPO, A Platinum And Chrome Rumour Mix Up, And Disorderly Politics As Indaba Wraps Up

By Bianca Markram

The trend Indaba attendees talked about over and over in Cape Town the past week is that raising funds, especially for exploration companies in early stage, is virtually impossible. But if a company were to try, the equity market is the last place to go to.

And yet on the last day of the African Mining Indaba (February 12), a Gabon-based iron ore junior launched its initial public offering on the other side of the Equator on London’s Alternative Investment Market (AIM).

IronRidge Resources raised £9.8 million (US$15.1 million), with South African iron ore producer Assore and its Japanese partner Sumitomo invested as major shareholders in the company.

The capital will help to fund drilling at the company’s Tschibanga and Belinga South projects in Gabon that are still in early stages of exploration.

“It’s not the best time in the market for an iron ore junior to list,” admitted Carole Ferguson, research analyst at SP Angel, speaking to about IronRidge four days before it listed.

However, Ferguson believes investors Assore and Sumitomo preferred a listing of the company in order to secure board representation.

“Assore is a conservative investor,” Ferguson said. “They clearly find IronRidge very attractive in the sense that the entire footprint of the resource appears to be of a good quality product.”
Just two days earlier Norman Mbazima, chief executive of Anglo American’s iron ore arm, Kumba Iron Ore, stated that he could not see anything that supports the recovery of the iron ore price. His company recorded a 13 per cent drop in revenue to R47.6 billion (US$4 billion) in 2014 due to the dive in iron ore prices.

But one commodity that Indaba attendees perceived as a strong market is diamonds. Although polished and rough prices are going through a slight dip due to the availability of smaller stones at the moment, some analysts noted a small uptick early this year.

Consensus is that polished prices will go down some more, with rough prices naturally following the same trend. With increased interest in coloured stones, however, producers pulling out smaller coloured diamonds could find themselves in a good niche space.

SP Angel’s Ferguson tips Petra Diamonds as a hot company because of its ability to pull out the smaller, coloured diamonds at its South African mines.

“These are sought after and keeps excitement in the market,” she said.

A rumour that confused somewhat is that ferro-chrome producer Hernic is trying to sell platinum concentrate. The South African company has a partnership with Jubilee Platinum to build a processing plant on Hernic property, whereby the two companies will beneficiate Hernic’s tailings. Hernic takes the chrome concentrate, while Jubilee will take the Platinum Group Metals (PGM) concentrate for further beneficiation, according to Jubilee chief executive Leon Coetzer.

However, the whispers at the Indaba are that Hernic has been offering platinum concentrate to certain parties long before the commencement of the tailings beneficiation project. We are keeping our ears to the ground to see if we can find more clues to this riddle.

Nedbank’s Mark Tyler and a few other Indaba attendees we spoke to noted that a downturn in the commodities market highlights the inefficiency of a use-it-or-lose-it policy that the vast majority of African governments have towards minerals licences.

They argue that 30 years ago juniors acquired projects and left them in a suitcase in the backroom until the markets started to firm. Then these owners would dust the projects off.

“These were the projects that came into production in the past decade,” Tyler said.

With a use-it-or-lose-it policy, however, this would no longer be possible. This has led to frivolous wasting of funds when a project is far from ready to see funds invested in it, just to keep the powers that be happy that something is happening on the project so as not to risk losing the rights to the property.

“This principle is having a detrimental effect on juniors and it must be reviewed,” Tyler said.

Interestingly, Patrice Motsepe’s African Rainbow Minerals (ARM) has decided in a board review that the company should draw back funds from certain commodities in the company’s portfolio while price weakness prevails, Mike Schmidt, chief executive, told on the sidelines of the Indaba.

One of the commodities it is reviewing to decide on whether to pull back on for the time being is copper. Two things would have influenced board members’ relook at the most recent fallen hero of commodities. The first blindingly obvious reason would be the tanking of the price when a number of shorts terminated their positions a few weeks back.

The other factor is also obvious. ARM’s Lubambe copper mine, currently ramping up to reach 45,000 tonnes per year by 2016/2017, is in Zambia. Recently Zambia has slapped a 20% royalty on open pit mining in the country to the dismay of all operators there.

The policy is strangling copper miners, especially within a more constrained price environment, the Zambian Chamber of Mines said.

Schmidt said the company might slow down its ramp up. He was not clear on whether ARM is looking at selling, but he was adamant that the mine would not be mothballed.

Manganese on the other hand is a commodity that ARM has made a strategic decision to not pull back from. Manganese has seen flickers of improvement from last year when demand dwindled and South African producers in various stages of ramp up shipped out a glut of material.

Now, Schmidt feels, manganese has some upside to it. ARM wants to ensure its capacity allocation with rail provider Transnet as it expands its rail capacity according to its infrastructure spending programme.
The company is currently in the process, through its stake in Assmang, to expand the Blackrock manganese mine to produce five million tonnes per year, from the current three million tonnes per year.

As the 20th African Mining Indaba drew to a close on Thursday afternoon, Cape Town was in the process of readying itself for another important event. The town centre was in lockdown for South Africa’s State of the Nation Address by President Jacob Zuma, with a strong police presence to ensure an orderly opening of the Parliament in the Mother City.

That orderly opening, of course, didn’t happen. It would appear constitutional rights and parliamentary sovereignty have been violated yet again in South Africa’s troubled political landscape.

Let’s hope the mining industry is more successful in dealing with its crises in 2015.

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