An African Rendezvous

The Indaba mining conference in Cape Town has been running for 17 years and is the world’s largest gathering of investors, financiers, advisers and mining professionals involved in African projects

The Indaba, ‘meeting in Africa’, is always well-attended, though it clearly suffers during a commodity downturn. The sizeable crowd of around 4,000 at last month’s iteration was in general agreement that it was the largest turnout for a few years and included more upbeat people than had been seen for quite some time. The consensus, as expected, was that the demand for commodities from the usual places, shrinking worldwide supplies and the upward movement in commodity prices were the key drivers behind the length and breadth of the attendance list.

The conference, held at the Cape Town International Convention Centre, ran from 7 to 10 February and hosted keynote speeches, an exhibition of companies, networking lunches, business matchmaking and cocktail receptions. Admittedly, the event also formed the backbone for a range of very enjoyable parties led by brokers, PR firms and lawyers.

The focus at the event for those from corporate advisory firms was to meet as many appropriate companies as possible and to manage relationships with existing clients. It was well worth taking advantage of the business matchmaking facility that automatically provided a 30-minute ‘speed-date’ with likeminded people and companies seeking private capital, a flotation or secondary financing, and those directors doing their bit to promote their stocks.

The companies represented at the event ranged as usual from the start-ups wanting to become explorers to the well-known multi-billion dollar entities. It is a very useful exercise at these functions to spend time at both ends of the corporate spectrum, together with analysts and fund managers of money, to get a feel for where we are in the cycle and where they think the mining sector is heading.

Very few were negative about the market and its prospects and most think we have quite some way to go. It was generally recognised that there is a little ‘froth’ in the market right now, particularly with some of the smaller companies commanding some quite serious valuations for no real reason – other than being in the right sector.

It quickly became apparent at the meetings attended that many of the companies already listed in Canada or Australia, or planning to float there, had little interest in considering a London presence – so my initial sales patter was quickly set aside. Retaining a focus on the as-yet-unlisted embryonic entities seemed to prove more fruitful, with no less than 20 meetings with those possessing, or with access to, early-stage exploration projects.  With a little sensible pre-IPO nurturing, some of these could well be the companies on many of our buy lists in the coming years.

A pair of very likeable entrepreneurs from East Africa was doing the rounds at the forum, with ownership of no less that 40 exploration licences that they wished to develop. They were a little short of mining experience – actually they had none – but we agreed between our groups that, providing they focus on the more interesting assets in their basket and surround themselves with suitable professionals, they were really on to something.

Minergy Limited, a small company out of Australia with interests in large-scale coal deposits in Botswana and uranium projects in Mauritania, roused some serious interest among those prepared to invest in pre-IPO situations. Managed by some good guys, assisted by a competent team of advisers in Perth and an ASX listing on the cards at the end of this year or early next, I felt compelled to leave the presenters with an order for their oversubscribed $1.5 million pre-IPO raise.

It again felt like 2004 or 2005, when a raft of micro-explorers obtained seed and pre-IPO capital and floated on the markets in no time at all. I remember well how quickly that all changed and if one thing is for certain, there is a bunch of people who also remember that and are now making hay while they can.

The AIM and TSX-listed African Aura Mining Inc stand was buzzing with interest – no doubt due to the pending split of their iron and gold interests into two separate companies. The shares started this year at 176p, rose around 5 per cent to 270p during the four day event and have been above 305p since. The Company is well-managed with a balanced board and it seems many shareholders will be holding until the split completes in the hope of a further re-rating.

New Dawn Mining Corp, the Zimbabwe-focused gold explorer, presented well and is targeting 100,000 ounces of consolidated gold production by 2015. Apparently valued at only $25-$30 million per ounce of gold given its country of operation, I put this one on my watch list.

It was worth noting that many of the companies attending Indaba made it clear that they would consider corporate activity as part of their growth plans to expand their interests in countries where they currently operate, as well as looking further afield at other opportunities. Those that were listed were well aware that their paper has become more valuable recently and I suspect, given the buoyant market in the small and mid-cap explorers and miners, we will see an increased level of consolidation over the coming two years.

The Hummingbird Resources party, at an extremely pleasant location, enabled discussions with board and backers on the potential of this Liberian-focused entity. The AIM-traded company with a significant package of 7,000 square kilometres of exploration interests floated in December 2010 in conjunction with a £30 million placing. The share price has come off since admission but is one worth following for future updates.

Taung Gold was another company to generate some real interest. With total gold resources approaching 30 million ounces and some very high net worth backers investing $30 million since 2008, the company plans a Hong Kong listing in the near future valuing Taung at around US$670 million. The board really has created something extremely valuable from a very low base in a short space of time.

After hooking up with Taung we had the opportunity to meet with Tim Goyder, the executive chairman of Chalice Gold and an experienced mining entrepreneur with over 30 years experience. Chalice, dual-listed on the ASX and TSX, is seeking to aggressively ramp-up operations on its 600 square kilometres of licences in Eritrea this year. This is one individual we’ll be staying in close contact with.

An enjoyable meeting was held with the well-regarded management of Pelangio Exploration (TSX:PX) where we discussed their plans to raise a nominal $4 million. That fundraising was closed shortly after Indaba as announced to the market on 24 February. The company is a junior gold explorer that acquires and explores land packages in world-class gold belts and has historically delivered some exciting returns for its shareholders. The board utilises innovative corporate restructuring to maximise shareholder value.

The company has a new focus on its most recently-acquired projects in Ghana, West Africa, including a 100-square-kilometre property, Manfo, that sits between the Ahafo and Chirano mines, respectively operated by Newmont and Kinross. Pelangio has recently had some near-surface discoveries at Manfo with high gold content and is actively exploring its 290-square-kilometre Obuasi property, located on strike and adjacent to AngloGold Ashanti’s Obuasi mine, which has historically produced over 30 million ounces of gold.

Finally, a mention must be made of Baobab Resources (BAO) the iron ore, base and precious metal explorer, whose exhibition stand was a hive of activity throughout the four days. Baobab, led by managing director Ben James, has continued to deliver and announce very exciting drilling results from its South Zone prospect at the company’s Tete iron/vanadium/titanium project in Mozambique.

The company has the support of the IFC (commercial arm of the World Bank) at both the corporate and project equity levels and its licence covers a 600-square-kilometre area and shares boundaries with Vale and Riversdale’s mega coal projects. A 47-million-tonne maiden inferred resource has been reported at the company’s Chitongue Grande prospect with a 400-700-million-tonne exploration target in the Massamba Group area.

The drilling campaign at Tete continues unabated with the next round of analytical results expected shortly, which is great for regular market newsflow and has created a big following in the stock. The company’s exploration programme is assessing a sequence of seven mineralised zones over a strike length of two kilometres, drilling on traverses 100 metres apart.

Some 50 reverse circulation drill holes have been planned for a total of 7,000 metres, with all areas drilled to date delineating substantially wider zones of mineralisation than anticipated. The market awaits the completion of a high-resolution survey of the Tenge/Ruoni area together with imminent news regarding the company’s Monte Muande exploration target. The shares have performed very well, more than doubling since the start of the year, now sitting north of 30p and trading in very reasonable volumes for a small stock.

I left the conference with the firm view that this is a must-attend event for any firm with a reasonable presence in the African mining space or a desire to enter it.

Gavin Burnell is a Director of Corporate Finance at Northland Capital Partners, an investment bank with a group presence in London, Toronto and Vancouver.

Note: The author has personal positions in several of the stocks mentioned in this article. Northland Capital Partners Inc brokered $3.7m of the funds raised by Pelangio detailed above. Baobab Resources plc is a broking client of Northland Capital Partners.