The JSE, once home to more than 50 mining companies, is no longer an attractive option for metals and minerals businesses due to a cumbersome licensing process for mining exploration in South Africa and a lack of appetite among asset managers for smaller mining companies.
Stefano Marani, CEO of Renergen, said the JSE is not what it used to be, and through no fault of the exchange.
“The fundamental situation in the country has changed and the negative feedback loop that persists in South Africa’s capital markets must be broken if we want to see capital flow into small caps and junior miners, which ultimately will lead to more jobs, higher business confidence and higher GDP growth.”
He said asset managers mainly invest in the Top 100 companies, avoiding anything with less liquidity.
“When it comes to investing in junior mining, the primary blame by asset managers for not doing so is placed on the department of mineral resources & energy, and regulation, when in reality the acts regulating mining haven’t changed in many years, just the perception of the regulation. As a result, a trust deficit has developed between business and government, which perpetuates the negative feedback loop.”
A junior miner is an exploration company focused on searching for deposits of metals, including gold, silver and uranium.
Marani said the JSE was not an ideal platform to raise capital for new projects, and other jurisdictions, such as Canada, the UK, the US and Australia, are streaking ahead in attracting mining companies, while South Africa's asset management industry continues to focus on the Top 100 in a shrinking economy in real terms.
“For us to tap into our incredible mineral wealth, which is vast, we need to repair the trust deficit from both sides, offer strong incentive to asset managers to invest outside the Top 100 and allow South African mining to compete with the likes of Chile, Australia and others on an equal footing from a legislative framework.”
The JSE was established in November 1887 to provide a platform for gold mining companies to raise capital to make the most of South Africa’s first gold rush.
JSE spokesperson Pheliswa Mayekiso said 39 mining companies were listed on the JSE, with a market cap of R6.7-trillion.
She said mining companies “can access South Africa's capital markets via the JSE’s fast-track listing process, which significantly reduces the time and costs associated with obtaining a secondary listing”.
Companies such as metal developer and explorer Orion Minerals listed on the JSE via the fast-track process, Mayekiso said.
“Recently there have been additional mining company announcements expressing their intentions to list on the JSE.”
She said the exchange works with and supports the department of mineral resources & Energy, and the Minerals Council, on mining incentive proposals to facilitate more local and offshore investment in junior mining companies.
Jan Nelson, CEO of Copper 360, which listed on the JSE in April, is bullish on the bourse and said there was still a lot of money in South Africa despite low consumer confidence and investor jitters towards emerging markets.
“I often hear people complain that there is no money in South Africa, which is absolute nonsense. There is a big pool of money from the institutions and a lot of high-net-worth individuals in South Africa. There is a lot of money in South Africa, that is why we have all our money in South Africa”.
Copper 360's bookbuild raised R152.5m ahead of its April listing on the JSE's Altx, which was 1.3 times oversubscribed.
But some miners have moved on, in some cases decades ago, in part driven by their global expansion.
It is often easier for a junior or exploration company to seek capital in global markets such as the Toronto and Australian stock exchanges.
— Louis Kruger, Deloitte Africa
Iconic South African company Anglo American moved its primary listing to London in the 1990s. More recently, in May, gold producer AngloGold Ashanti moved its primary listing to New York to improve liquidity, while other mining companies, including Sibanye-Stillwater, have secondary listings on other exchanges.
Nelson said due to the pandemic and the economic recession in the past two years there were few listings. However, now there is heightened economic activity and people are looking to exploit new opportunities and invest.
“I think you will see a flurry of new exploration and junior mining companies coming to market. I think there is going to be a lot of activity in the JSE over the next two years because there is a lot of pressure for metal; there is a lot of opportunity in South Africa and Africa.”
As the JSE is the biggest stock exchange in Africa and one of the biggest in the world, more companies would come to the market.
Louis Kruger, energy, resources and industrials industry leader at Deloitte Africa, said while there were more than 2,000 listed mining companies on Canadian stock exchanges and more than 650 on the Australian Securities Exchange, the number of JSE-listed mining companies decreased from about 50 to just more than 30 in the past decade. He said in the mid-1990s there were more than 120.
One of the reasons was there were fewer local institutional investors to fund early-stage mining projects or exploration, Kruger said.
“It is often easier for a junior or exploration company to seek capital in the global markets, such as the Toronto and Australian stock exchanges.”
There was a perceived South Africa discount associated with JSE-listed mining stocks.
“This is probably one of the reasons we see mining companies having dual listings, often with the primary listing being in London, Australia or Canada. Some 15 mining companies have secondary listings in South Africa as of December 2022 and have their assets here, but primary listings on other exchanges.”
He said a vibrant mining sector, which leads to mining company listings, depended on a robust mineral exploration and junior mining segment.
“South Africa lacks this — [it] attracted less than 1% of global exploration spend in 2021. Furthermore, the award of mining licences is cumbersome. According to the Minerals Council of South Africa, it currently takes more than 350 days to process a mining licence in South Africa, compared with 40 days in Botswana.”
Keith McLachlan, chief investment officer at Integral Asset Management, said 8.9% of the JSE’s market cap is outside the top 40 stocks.
“Logically, the asset management market should reflect this, yet it does not. Only 0.2% of the assets under management in unit trust mandates is attributable to small and midcap mandates. This is a disastrous mismatch.”
Paul Miller, a director at AmaranthCX, said small open-pit collieries and chrome mines had been established and a large number of new manganese mines opened, but none had been listed.
“That is a failure not of the JSE, but of the public markets. In a way, our savings have been overregulated in South Africa. The large financial institutions have got so large and monolithic that 10 of them, if you include the PIC, now manage over 90% of all savings in South Africa. They publicly state any company outside the Top 100 is uninvestable from a size and liquidity point of view alone.”
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