Junior miners, the future for African mining

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“[Junior miners] will play a vital role in the future in providing an opportunity for the major [miners],” said Phillip Kotze, Wits Gold financial director, at a panel discussion at the Investing in Resources and Mining in Africa conference on Wednesday.

Junior miners are still relative newcomers in Africa’s burgeoning mining industry, but are quickly garnering legitimacy as an alternative area of investment.

“We’re starting to see people coming with projects of real value. We want people with good projects and I think now is the time [to invest],” said Neil Gardyne, director of the New African Mining Fund.

Among the panel members was Justin Froneman, mining, equities and commodities analyst at SBG Securities, who added that junior miners have begun to fill a vital space in the industry, and while they are quicker to react to a financial crisis than larger miners, they have nonetheless become more flexible to shocks.

Other panel members included Wits Gold CEO James Campbell and Montenero Mining and Exploration CEO Tony Harwood.

Investors however remain wary of making significant investment into junior miners. Private equity investors are also reluctant to add mining into investment portfolios. The industry has been known to sometimes have an unpredictable nature, which is part of the reason for the reluctance.  

“Investors see mining as a gamble, so they put a little of it on their portfolio as possible,” said Harwood. “I think broadly it’s a gamble but it can yield massive return.”

According to a 2013 Grant Thornton mining report, while South Africa holds some of the world’s largest metals reserves, incidents such as severe labour unrest this year and the uncertainly over mining regulation has negatively impacted the industry.

Junior miners in particular were the hardest hit by the negative sentiment and unrest.

Mining still makes a weighty contribution to South Africa’s GDP, and the emergence of junior miners in both South Africa and in the continent is expected to increase investment and partnerships within the industry.

Gardyne added, “The money is there but the projects have got to be good, [and] the risks have to be shared”.