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“The difference between an Australian mining junior and a Malian SARL comes down to access to financing”, specifies Me Bourgeois – VivAfrik

The richness of the African subsoil in minerals is no longer in doubt today. Several countries on the continent are even described as geological scandals as the mineral resources they hold are so important and diversified. While foreign companies have quickly understood the value of this windfall and are vying for the cake, to date there are very few active 100% African mining companies, even at the exploration stage. However, the local technical and human capacities in the mining field exist. Charles Bourgeois, lawyer at the Paris Bar and specialist in mining law, spoke with our colleagues from the Ecofin Agency on one of the last barriers to be broken down to allow the emergence of 100% African mining players: the access to financing.

For many years there has been an inability of local African companies to develop the exploration permits they hold themselves, generally preferring to sell them to international companies. How do you explain that ?

At the exploration stage, i.e. the search for one or more ore deposits on a perimeter defined by the permit, it is mainly a question of a lack of capital, because this exploratory phase does not generally requires neither significant logistics (construction of infrastructure, etc.), nor know-how reserved for a few large international mining groups.

The search for minerals involves several major steps, in this case the review and synthesis of the available information, prospecting, mapping, surveys and drilling, sampling and finally the estimation of resources through tests in particular. mineralurgical and metallurgical processes carried out in the laboratory.

For each of these stages, it is possible to delegate all or part of the execution to one or more specialized companies (airborne geophysical surveys, exploration drilling, analysis laboratories, etc.), the holder of the mining permit generally having internally of a geologist responsible for the exploration campaign.

In other words, the difference between an Australian “mining junior” and a Malian SARL, both of which have a gold exploration permit in Mali, is not technical know-how or geological skills, but simply access to financing. .

However, contrary to popular belief, African entrepreneurs and companies have their place in the exploration of their own resources on the continent and are perhaps ill-informed to choose to part too quickly with potentially promising mining assets.

What types of financing are necessary for an African company to develop a mining project at the research permit stage and how can African companies and entrepreneurs access it?

At the exploration stage, in my opinion, it is necessary to distinguish two main stages: the scientific demonstration of the existence of a deposit on a given perimeter and the confirmation that this deposit can be exploited under satisfactory conditions for the mining operator, both from an economic point of view and from an environmental and social point of view.

The first stage leads the operator to mainly seek funding for its operating costs and its initial exploration expenses in order to demonstrate the existence of exploitable mineralization. These initial expenses are generally financed by contributions of equity or quasi-equity by the partners of the company.

Once one or more tangible deposit(s) have been identified within the scope of the exploration permit, its holder will generally appeal to the international financial markets in order to finance new exploration work allowing, the if necessary, to prepare the feasibility study. With regard to these financial markets, we often speak of the London Stock Exchange (LSE), the Toronto Stock Exchange (TSX) or the Australian Securities Exchange (ASX) for the listing of international mining juniors, but the other market which is mentioned very little despite the opportunities it offers is, I find, Euronext.

Is it possible for an African company to finance its exploration program on the Euronext market?

It is quite possible to list an African mining company on one of the Euronext markets in order to enable it to finance its exploration program. The mining company Auplata Mining Group, present in particular in Côte d’Ivoire, is for example listed in Paris on the Euronext Growth market, whose listing requirements are simplified and the ongoing obligations are less important than for the regulated Euronext market. .

It must however be recognized that to raise funds, mining companies active on the continent prefer the major international mining centers such as Toronto or London, because these are markets perceived as more liquid and whose investors are familiar with the risks associated with exploration activity.

In Toronto, the TSX Venture Exchange Tier I and Tier 2 are, for example, specialized markets for mining companies in the exploration phase, which capture almost the majority of quotations from junior mining companies internationally.

Unfortunately Euronext communicates very little to the attention of the mining industry, which perhaps explains the low number of listings of mining companies, particularly African ones, on its various markets. To my knowledge, the only specificity granted to mining companies for a listing on one of the Euronext markets is an exemption linked to the seniority of the company (according to the Euronext markets, it is generally necessary to present two or even three balance for a first listing) while the Toronto Stock Exchange, for example, provides for an entire regulation devoted solely to the admission of mining companies in the exploration phase. When we know that nearly 34 billion US dollars have been invested over the last five years in the capital of mining companies listed on the Toronto Stock Exchange, we can nevertheless measure the potential of this industry for the various Euronext markets.

If it wishes to attract the listing of African mining companies, Euronext must necessarily seek to promote its activity and its attractiveness to investors and the mining industry. The current strong appetite of the markets for raw materials should be able to encourage this reflection by the leaders of Euronext.

Precisely, Euronext is certainly not the only market that is little mentioned in the mining sector. In Africa, there are several local stock markets including the Johannesburg Stock Exchange, what do you think are their limits?

This is a very interesting question, because if the Johannesburg Stock Exchange attracts fewer and fewer mining companies for reasons that seem structural to its economy, the other African markets can undoubtedly do well in the secondary market. Let me explain.

The primary market designates the one on which a mining issuer will seek to list its securities on the stock exchange in order to raise capital intended to finance its exploration and/or production activities. To succeed, this phase requires what is called “market depth”, i.e. mainly a large mass of capital that can be mobilized and specialists capable of assessing the risks and potential return on investment of a project. mining. In Africa, only the Johannesburg market has a truly favorable environment for a mining company’s initial fundraising.

The secondary market involves buyers and sellers of securities already issued and acquired on the primary market. This mainly involves offering better liquidity to investors who have acquired securities on the primary market, which generally has the effect of reducing the cost of equity for the issuer and therefore of its future financing. When we talk about mining companies exploiting the African subsoil and wishing, for example, to carry out a double listing on the Regional Stock Exchange of Abidjan, this means that the latter will open part of their capital to shareholders of the sub-region who will be able to benefit from information on the company’s mining activities and obtain possible dividends and/or capital gains on the sale of their securities.

Since the African Mining Vision adopted by the African Union in 2009, international companies increasingly understand that it is their social responsibility to better share the value produced by mining and that it is necessary to go further than the simple “local content” obligations provided for by the various African mining codes in order to have their projects socially and economically accepted. And this most certainly involves opening up capital to local investors!

In the event that the African holder of an exploration mining permit does not manage to finance his exploration expenses on the financial markets, is the latter condemned to transfer his permit to an international mining company which will know, as to her, raise funds?

Let’s go back to the example of SARL Malienne, which holds a gold prospecting license in Mali. The development of its permit therefore necessarily requires securing – at a minimum – the financing of all the research work up to the feasibility study.

In the event that this company would not be able to finance these expenses, it should typically seek either to sell the mining permit directly to a third-party investor, or to sell part of its capital to another mining company by remaining, for example, a minority shareholder. and hoping to benefit from future development of the permit.

The problem with this last option is that the Malian shareholder will lose control of his company and that if a shareholders’ agreement is not duly negotiated with, in particular, guarantees of non-dilution or distribution of the result, he will potentially diluted according to the various fundraisers and will have no guarantee of one day receiving the expected dividends linked to the exploitation of the permit.

There is, however, in some African jurisdictions an intermediate solution, in practice little used at the exploration stage, but which deserves attention: the lease of the exploration permit.

Can you tell us more about “lease-out” mining contracts and the advantages that this mechanism can have for the holder of an exploration permit who does not have the technical and/or financial capacities to carry out the exploration work? on the titled perimeter?

In mining, leasing is a contract by which the holder (leasing) of a mining title transfers to a third party (lessee) all or part of the rights and obligations resulting from it on the leased perimeter in return for the payment of a royalty fee.

In other words, leasing allows the holder of a mining permit to keep his title while transferring the rights and obligations resulting therefrom to a third party for remuneration.

If by definition the exploration phase does not generate income, this remuneration could be negotiated for example with a part in cash in order to reimburse the first expenses incurred and the rest in shares of the lessee.

Depending on the jurisdictions concerned, this is an option that could be interesting in the event of a local company holding an exploration permit and wishing to retain ownership of its mining title despite the lack of financial means to continue exploration work. the first results of which would be promising.

Interview by Louis-Nino Kansoun (Ecofin Agency)

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