Mantengu Mining has bagged a R500m equity facility with global financial heavyweight GEM Global Yield Fund (GEM), beefing up its balance sheet before its imminent expansion.
The newly relisted mining investment company aims to stage a turnaround after its 2016 suspension from the JSE for late submission of its annual financial statements and is looking to ramp up its portfolio by securing access to limber equity and debt.
Mantengu’s share price was down 29.08% at R1 on Friday, a day after the industrial engineering group announced the transaction to shareholders on Sens.
CEO Mike Miller said significant value is locked in the small to large mining sector due to the lack of access to capital. Mantengu aims to aggressively unlock the intrinsic value in this sector by using this equity facility to complement the group’s other debt facilities.
He said the equity facility will bolster Mantengu’s growing investment capability and provide it with significant elasticity to aggressively expand operations and pursue new opportunities in the mining, mining services and energy sectors.
“The equity provides Mantengu a significant committed pool of funds available to be drawn down at Mantengu’s discretion,” Miller told Business Day. “With [alternative investment fund manager] GEM being a Mantengu shareholder, Mantengu will have increased access to global capital markets that will allow it to punch above its weight category.
“At a later stage, we will be in a position to announce the details of our expansion plans,” he said.
The $3.4bn GEM has operations in Paris, New York and the Bahamas, and is focused on emerging markets worldwide.
Commitment fee
As part of the deal, Mantengu entered into a share subscription facility agreement with GEM Global Yield and an unrelated third party, GEM Yield Bahamas. Mantengu will issue warrants to the investor to subscribe for up to 20-million ordinary shares.
It will also have to pay GYBL a commitment fee of R10m payable in cash or ordinary shares.
Mantengu was quick to clarify that the facility is not a debt facility as there are no repayment obligations on it, but rather it is a commitment by the investor to subscribe for equity in Mantengu of up to a maximum value of R500m against the delivery of subscription notices within the three year period from the signature date.
Mantengu will control the timing and amount of any drawdown under the facility, it added, and the investor will be obliged to subscribe for the requested number of consideration shares within 15 days.
It said the subscription price will be 90% of the average closing bid prices during a pricing period, excluding any “knockout day”, which is any trading day during a pricing period.
Miller said the transaction breaks the current cycle in which the JSE is experiencing significantly higher net outflows of foreign capital while GEM’s investment “clearly demonstrates” that it supports the skill, experience, and entrepreneurial spirit of the Mantengu board that is further amplified by the flexibility of the committed facility.
A fusion of retirement funds being allowed to increase their offshore allocations to 45%, greylisting coupled with protracted Eskom and Transnet challenges that hinder the economy, has caused increased delistings from the bourse amid dwindling trading volumes.
Rural communities
“Mantengu has defied this trend by securing this investment which clearly shows that the Mantengu management team has significant support from the new investor and current shareholders,” Miller said.
The Johannesburg-based firm uses a new funding model that allows projects to get off the ground effectively and fully funded up front through debt, saying it hopes this will be used elsewhere to allow SA’s rural communities to monetise their natural resources.
Acknowledging that SA has a long-standing broad-based BEE legislation designed and aimed to promote new wealth creation, Miller said the legislation is largely ineffective at creating new wealth because the rules of funding generally require existing balance sheet strength and a successful track record of using the balance sheet.
“This is a totally self-defeating concept, as how does the country create new wealth if the starting point says that wealth is required to create new wealth?,” said the CEO, pointing out that many previous BBBEE transactions in the SA market “failed dismally in creating new wealth, and have, in fact, perpetuated further inequality”.
Miller was confident that the novel funding model largely breaks these barriers to entry, saying because the group’s funding model allows it to acquire these assets on a 100% debt basis, which avoids the higher cost of equity, “this allows us to ‘plug and play’ the GEM funds into optimal structures”, he said.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.