Mantengu takes a first step

• Company tells of access to $70m reinsurance facility to help rural communities that struggle to access finance

Last week’s new Mantengu Mining JSE relisting, after its 2016 suspension, is the first step in achieving a far bigger vision of “opening the floodgates in the small- to medium-scale mining space” to the benefit of rural communities. Formerly known as Mine Restoration Investments, the company has been trying for a decade to acquire an operating asset.

Last week’s new Mantengu Mining JSE relisting, after its 2016 suspension, is the first step in achieving a far bigger vision of “opening the floodgates in the small- to medium-scale mining space” to the benefit of rural communities in paper-converting and plastic bins and crates businesses outside the black economic empowerment (BEE) benefit pool.

Formerly known as Mine Restoration Investments, the company has been trying for a decade to acquire an operating asset making use of a new funding model that allows projects to get off the ground effectively fully funded upfront through debt.

The listing came after shareholders approved a reverse takeover of a chrome asset, Langpan Mining, which lies about 17km south of Thabazimbi in Limpopo.

According to Mantengu, the mine has a mineral reserve of 2.17-million tons of chrome (including platinum group metals) valued at R851m.

It was acquired in a related party paper deal via the issuing of 137.5-billion new shares in settlement. But, says Mantengu chair Mike Miller, even though they expect revenue to start flowing from Langpan early next year, buying the asset was also a means to an end.

The drive behind the whole initiative, Miller told Business Day, is to find new ways to unlock the value of raw assets for rural communities that struggle to access capital and financing through traditional finance streams.

After getting an accounting degree and then a master’s degree that looked at how BEE could be more broadly rolled out through the financing and development of community-held assets in rural areas, Miller moved to Limpopo mining town Phalaborwa alongside the Kruger National Park.

He says this is an area with an abundance of raw mining, tourism, agriculture and energy assets that are still unlocked. “If you drive through the area, as far as the eye can see there are just billions of rand of assets that have not been unlocked.”

But developing assets in this area has problems and risks. Miller cites the examples of tribal and land rights issues.

“The question to answer is how do you structure these deals to effectively unlock the inherent value of natural assets?”

One investment they are trying to get off the ground is a renewable energy biomass project for a large mine in Limpopo for which their proposal has been short-listed.

“Something like this can be a game changer for an area like this that has up to 70% unemployment in some parts.”

First, however, Mantengu realised they needed a funding mechanism that could unlock a 100% debt and mitigate traditional barriers to entry from a capital perspective, including having a balance sheet and proof of operating history.

“Inevitably, if you are moving into the rural space in SA, you are never going to have this kind of security, so the challenge is how do you bridge these barriers to accessing finance. This led us to the funding model we have now.” There is, at best, lukewarm interest from banks and traders to invest in smaller, new mining companies in SA, says Miller.

“If you are a smaller to medium mine, you’ve got almost zero access to liquidity in the SA market [either through private equity or banks]. Having reached this conclusion, we spent a lot of time in the UK working with individuals who like the concept of investing in Africa and rural empowerment, but they have concern about the deployment efficacy, returns and security.”

To provide funders with the confidence and comfort around deployment of funds, Mantengu realised they would have to be listed because “from a listing perspective the JSE carries a fair amount of weight in global capital markets”.

That was the reason for executing the reverse takeover of Langpan which enabled Mantengu’s JSE listing, which in turn provides that bridge between “big pools of developed world funding and African deployment”.

The Langpan deal also provides an opportunity to prove the concept of its new funding model. The mine was placed under care and maintenance while the capital raise and listing procedure were being completed. Mantengu has been able to raise R100m of 100% debt capital, of which about R60m is through the new funding model. This will be used to carry out necessary upgrades at the chrome plant.

This model involves finding an offshore investor willing to provide insurance covering the delivery of a product, such as chrome concentrate, against the guarantee of an asset for collateral, as well as a market for that asset’s product. With this guarantee in place, it allows the business

WE SPENT A LOT OF TIME IN THE UK WORKING WITH INDIVIDUALS WHO LIKE THE CONCEPT OF INVESTING IN AFRICA

to raise the debt it needs to start generating cash flow, with funds coming either from third parties or from intended customers.

According to Miller, the financing agreement has Reserve Bank approval.

With this funding model, Mantengu has been given a $70m reinsurance facility to write guarantees out of London. The reinsurers, says Miller, want to see them spend these funds within the next 15 months.

The business will be targeting small to medium-size mines and resources owned by communities as well as existing assets that rely heavily on communities.

“We have already started with due diligence on several assets, and we are hoping to do another major transaction within the next 60 to 90 days,” Miller says.

“For me the system of empowerment in SA is fundamentally broken.

“What we are excited about is, because we have unlocked this capital to support our empowerment initiatives, we can go into a lot of the assets that are [yet to be developed].”