As we reflect on the past year we have seen a renewed sense of hope in SA’s economic future take hold. The formation of the government of national unity, months without load-shedding and the rand’s improving performance have helped sentiment turn positive.
SA’s mining industry, long a cornerstone of our export economy and a major employer, cannot be blamed for feeling a little left out. SA’s status as a mining centre continues to wane, just as the energy transition and enormous global demand for critical minerals to support it gathers pace. SA’s mining production has in effect reached a plateau — output in many key areas is actually declining.
Despite its vast potential, junior mining faces significant challenges. This vital area of the mining industry employs close to 40,000 people and plays a key role creating wider stakeholder value as it helps realise the shared value of SA’s resources.
However, junior mining is starved of the capital it needs to grow — the number of JSE listings of junior miners has declined sharply in recent years, with only one JSE listed junior supported by an institutional shareholding of more than 20%.
There are some bright spots: just as we see improved sentiment emerging across the macro environment in SA, we have begun to see rich potential to reimagine the support we can provide for the development of SA’s junior mining sector.
The JSE is collaborating with the key industry association, the Minerals Council, on market-making schemes to incentivise brokers in creating markets that will provide the junior sector with greater liquidity. The department of mineral resources & energy has also recognised the value the sector can bring, creating a R400m junior exploration fund to support some of the about 400 smaller mining companies operating in SA.
These important interventions support the growth side of the equation, but what about the risk management component that is so fundamental to mining? The high failure rates we have seen across the junior mining space suggest that the industry and its many stakeholders — government, labour and investors — need better tools to alleviate the risk of closures when things go wrong at mining operations.
Over the past few years we have seen an increasing number of junior miners turn to business rescue as a tested mechanism that helps protect them from a turn in the commodity cycle, or the operational and financial issues that see so many smaller mining companies fail. By temporarily suspending the rights of claimants against the company, business rescue facilitates restructuring plans designed to return distressed companies to trading on a solvent basis.
This is an important, and often more constructive, alternative to liquidation, as business rescue protects the interests of all stakeholders who benefit from a potentially revitalised company that can continue to generate shareholder returns and make a socioeconomic contribution over time. Final liquidation in effect terminates the mining right, while business rescue protects the company and its mining right.
Since the SA business rescue regime’s establishment in 2011 about 4,370 companies have entered business rescue, with 19% reaching substantial implementation. According to a recent Companies & Intellectual Property Commission status report there are 1,649 active business rescue proceedings.
We have seen several recent examples of successful business rescues in mining, which have helped preserve jobs and maintain relationships with suppliers, regulators and customers, contributing to a more stable operational environment.
Business rescue’s goals align closely with the longer-term return horizons of investors backing mining projects, and the need for shared value that many of SA’s stakeholders in the industry will continue to have for decades to come, including key ministries such as the department of mineral resources & energy.
By focusing on long-term viability and operational stability, business rescue can enhance prospects for value recovery through continued operations, asset realisation and strategic financial management. This ability to preserve value can play an important role in addressing perceptions of risk in the sector and offer investors comfort as they look to deploy capital in the sector.
As wider environmental, social & governance considerations remain central to the mining agenda, business rescue practitioners are able to manage the complexity that comes with working in the SA mining industry, navigating relationships with regulators, labour and affected communities.
This collaborative approach, which considers a range of stakeholder interests, provides distressed companies with an opportunity to address community and labour concerns more effectively. This includes environmental impacts and social responsibilities, with engagement fostering a greater sense of ownership and leading to improved relationships between mining companies and their most important stakeholders. Employees also have the legal right to information on the progress of the rescue process, enabling them to better advocate for their rights.
As we deal with the environmental and social legacy of mining, effective business rescue processes can also lead to better strategies for mine closure and rehabilitation. By keeping legitimate mining operations active it is possible to see a reduction in illegal mining activities that often occur in abandoned or distressed areas.
We believe creating sustainable value in the junior mining sector that lasts beyond commodity and economic growth cycles will require a fresh look at this critical sector, and the tools we use to support it. Business rescue is an important option that can support better outcomes for distressed mining companies, helping protect shared value as we work to build an SA mining sector that is fit for the future.
• Fleming is CEO of Engaged Business Turnaround.
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.