 |
 |
 |
 |
 |
 | ||||
Old Mutual reluctantly enters the spotl... Venmyn predicts more mines over the next... Northam - acting in shareholders' worst ... |
Venmyn predicts more mines over the next decade
INVESTMENT
TOO much cheap money chased too many mining projects offering indifferent returns. That's how minerals adviser Venmyn Rand sees the decade. Since its establishment as the first SA company to bridge the gap between technical and financial minds in the mining business 10 years ago, there is a sense of déjã vu: the value of mineral projects is always a function of the geology, and there aren't that many good ones left around the world. Locally, money in the bank today commands a 20% risk-free return and, realistically, mining projects need a gross discount rate of better than 30% to compensate for mining's high risk. Many funds based their mining investment decisions on the rate of inflation plus a small premium; the hurdle rates were set too low, many low-return mines came onstream and few investors made money. Almost all hoped for better metal prices, but were seldom obliged: there is no greater case in point than the Northam platinum mine. From oil to diamonds, the story is the same. In order to sober the investment process, Venmyn has pioneered many mining valuation initiatives and emphasised full disclosure in shareholder documents of information compiled and reported on by companies. Membership of the Australasian Institute of Mining and Metallurgy allowed Venmyn to introduce Australia's superior code of practice to a somewhat reluctant South Africa; now full disclosure has become standard. Says Venmyn director Andy Clay: "Some international listings were based on reports that were little better than the endorsement of the Canadian geologist who reported he had 'flown over the area and it looked prospective for diamonds'." Not only is the competent person reporting on the mining project obliged to be adequately qualified to make an evaluation, the client must undertake to disclose to that person all the relevant data, omission for which the company may be held liable. "The competent person can't just sign off the report if he feels there is insufficient information. He can't reach a compromise with the client," says Clay. Venmyn has also been big on the importance of correctly modelling and categorising ore reserves (to avoid Bre-X style fraud), as well as on the methods of reporting recovery rates by mines. Clay and Venmyn co-founder Willo Stear left Rand Mines in 1988 to set up Venmyn, with support from Rand Merchant Bank. Venmyn's thrust was to present technical information concisely in readable format, principally through computer graphics. "Promoters need to detail their project in an investor-friendly manner, clearly demonstrating the rate of return and the comparison with other investments. It has to be comprehensible, not bamboozling," says Clay. Venmyn expects more southern African region projects in the next 10 years, especially through privatisation initiatives. "There is always money for a good project," says Clay. "I think we will see two to three years of very careful rationing of finances. It will be difficult to raise money for new mines. Thresholds will be high. It looks like a good time to be buying existing assets heavily discounted by metal price falls." Clay expects junior mining companies to do the bulk of the exploring and discovering, and that mining houses could do worse than establish partnerships with smaller teams. "Venmyn tries to promote the development of a credible junior mining sector because entrepreneurial flair is often short in the major corporations; but it is the force that drives mineral discoveries in undeveloped areas of exploration."
|