The R1.35bn allocated for an early-stage mining opportunities fund will take time to roll out due to a shortage of domestic mining-focused investment funds, says the Public Investment Corporation (PIC).
The state-owned asset management firm, which has more than R3-trillion in assets under management, set aside R1.35bn in October to boost economic growth and support South Africa’s green energy plans.
Mineral-endowed South Africa is aiming to position itself in the global supply of critical minerals for the production of aerospace components, electric vehicles, and battery storage.
As part of its allocation, the PIC is targeting the funding of commodities including cobalt, nickel, lithium, graphite, rare earth elements, tin, tungsten, tantalum, bauxite, manganese, and other strategic minerals related to the just energy transition.
The PIC wants at least half of the projects to be based in South Africa, with an allocation for the rest of the continent also available. It aims to allocate between R100m to R400m to projects at the study phase up to a bankable feasibility study with the focus on transformation and preference on historically disadvantaged individuals.
The PIC told Business Times on Friday that the allocation sought to “catalyse” investments in early-stage mining projects, where there has been very little capital flow.
Up to 99% of the enquires received to date have been from owners of individual mining projects seeking investment to progress their projects from exploration to development
“Fund managers in South Africa have not focused on this area, and there has not been appetite from institutional investors to fund early-stage mining projects. By taking a lead in funding early-stage mining, PIC aims to unlock capital from other institutional investors,” it said.
In addition to the R1.35bn from PIC, South Africa’s junior mining sector received a shot in the arm through the R400m Junior Exploration Fund led by the Industrial Development Corporation and the department of minerals and petroleum resources. BHP Xplor supports early-stage development projects benefiting junior producers.
PIC said it expects its allocation will encourage private equity and venture capital funds to raise mining-focused funds. It said rather than investing directly into mining projects, it will inject capital through specialist private equity (PE) and venture capital (VC) funds, or similar intermediaries, which will themselves build diversified portfolios of early-stage mining opportunities.
“At present, there are few to no South African-based mining-focused private equity funds that meet the mandate requirements, which means that the PIC must first allow time for these fund managers to structure themselves appropriately,” the PIC said.
It said this included fundraising, governance, compliance, and the development of credible investment pipelines. “As a result, capital deployment is expected to occur gradually, with meaningful commitments anticipated only once qualifying fund managers have been established.”
The PIC said, given the indirect nature of the fund and the current absence of suitable intermediaries, the uptake is expected to take time. “Market interest has been extremely high, as evidenced by the volume of enquiries received, but progress depends on the establishment and readiness of compliant PE and VC vehicles,” it said.
Up to 99% of the enquires received to date have been from owners of individual mining projects seeking investment to progress their projects from exploration to development, which highlights the high need and lack of such funding in South Africa for project developers.
It expects that once these structures are in place, allocation will play a catalytic role in stimulating early-stage mining investment both in South Africa and, where appropriate, across the rest of Africa, with at least 50% of capital always remaining in South Africa.
Local junior mining companies said they had yet to benefit from the PIC’s R1.35bn allocation. “There are misalignments and unreasonable requirements,” said Fred Arendse, president of the Junior Mining Council.
In terms of eligibility, all intermediary funds must be domiciled in South Africa, or must be credibly transitioning to become at least 50% black South African owned.
The PIC said its ownership and transformation requirement aligns with both the Government Employee Pension Fund and PIC transformation charter objectives and ensures that the benefits of the programme support South African empowerment objectives.
Despite the domestic challenges, including regulatory uncertainty and licensing backlog, the junior mining sector remains an investment opportunity. The JSE is also aiming to support fundraising in the junior market sector.
Patrycja Kula-Verster, equity origination manager at the JSE, has welcomed funding initiatives for junior miners, including those from the PIC, BHP Xplor, and the IDC/department of mineral resources and energy, which strengthen the broader funding ecosystem.
“The JSE continues to engage with various stakeholders on how to enable access to capital for mining companies, including junior miners, both in South Africa and offshore. This is primarily supported through the JSE’s listing offerings and the JSE Private Placements platform,” she said.
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