PIC Launches Fund For Early-Stage Mining

By Rodney Weidemann

The Public Investment Corporation (PIC) has launched a R1.35-billion fund for early-stage mining, focusing on advanced projects – the post-scoping to bankable feasibility study stage. Funding will be split 50/50, with half allocated for projects in South Africa, and the other 50% for the rest of Africa.

The money is to be invested across diversified commodities, geographies, and development stages. This approach aims to mitigate the high-risk nature of early-stage mining investments while delivering attractive returns for PIC clients.

According to the PIC, funding is to be provided indirectly through private equity, venture capital, specialist funds, joint ventures, and partnerships, with the goal of derisking high-potential projects and boosting SA’s mining sector.

The investment strategy supports a wide range of strategic minerals critical for South Africa’s Just Energy Transition (JET), such as copper, cobalt, nickel, lithium, graphite, tin, tungsten, tantalum, bauxite, antimony, fluorspar, manganese, and other related minerals aligned to JET objectives.

The allocation affirms the PIC’s commitment to driving economic growth, fostering responsible investing, catalysing minerals of the future and enhancing South Africa’s global competitiveness in mining. This funding aligns with the government’s objectives of transitioning the industry to be more inclusive, sustainable, and economically beneficial for all citizens.

Significant returns

Julia McFarlane, senior manager at Deloitte Technical Mining Advisory, says it is a widely held belief that growth in the mining sector has been constrained by a lack of investment in exploration and project development in this sector. Thus, by making these kinds of funds available, we should see significant returns in the form of growth in the sector, and the wider economy.

“Depending on the level of work done to establish geological confidence in a deposit or the economic potential of early-stage mining opportunities, the commodity, and the characteristics of the project site, this level of investment could potentially bring several projects over the line,” she says.

This should sufficiently reduce the development risk for other investors, and encourage additional exploration in geologically prospective areas, she says.

“Importantly, this reduces the initial risk presented to any junior explorer in identifying and committing capital to target identification and early prospectivity,” says McFarlane.

Grant Mitchell, lead at the Junior and Emerging Miners Desk at the Minerals Council South Africa (MCSA), says locally, most current exploration has been focused on already known reserves – there has been no greenfields exploration.

“However, the JET demands a lot of greenfields exploration, so anything that can encourage more of this is good for the industry. In particular, the focus of the PIC investment is complementary to the exploration funding being offered by the Industrial Development Corporation (IDC), meaning the two can dovetail to provide a significant boost to the mining sector,” he says.

“There is little doubt this is a positive for the junior mining industry in SA, as well as the broader mining sector. After all, modern mines can take close to two decades to develop into viable operations, so it is vitally important to fund new developments through mechanisms like this.”

Golden opportunity

McFarlane cautions that the sustained availability of this funding is critical, explaining that other jurisdictions have experienced much greater investment over a period of years, which builds a long-term pipeline of projects. As an example, Australia has committed about US$275-million annually for the past 15 years, while South African budgets were US$71.3m in 2011 and declined to a low of US$3.2m in 2022.

“The JET is a golden opportunity for South Africa, and for the African continent. Not only are SA and the rest of the continent geologically prospective for these critical minerals, but the region is also relatively underexplored compared to the rest of the world.”

This means that well-directed investment in exploration and project development is required to make the most of this opportunity, she says.

“It must be mentioned that, with operating mines already navigating cost pressures, critical minerals markets are considered generally volatile. This volatility introduces risk across the long-term development period required to bring a prospective site into production and requirement for sustained finance during periods of bearish commodity markets.”

This means the financing unlocks opportunities for the long term and provides a mechanism to continue to drive their development through periods of heightened risk, she says.

Mitchell agrees that funding like this is particularly crucial for junior miners, since it is important that their efforts at early-stage development receive this level of support.

“The one proviso here is the high black economic empowerment (BEE) requirements attached to the PIC funding, which will obviously limit the market. While there are numerous foreign investors that would like to play in this space, many will not be prepared to accept these BEE requirements,” he says.

“Thus, on one hand, the funding supports the growth of fully BEE-compliant exploration and development, [but] at the same time it will also disqualify many potential foreign investors.”

Valuable contribution

The relatively high cost of determining feasibility in mining, says McFarlane, has left a funding gap at the pre-feasibility and feasibility stages, which has left several project developments stranded at the scoping stage. The PIC initiative will hopefully unlock projects caught in this gap.

“The funding value put forward by the PIC could also provide a valuable contribution to grassroots exploration, bringing investment into a single country to a level that is somewhat relatable with other mature mining jurisdictions worldwide.”

Mitchell is of the opinion that anything that leads to new mines being developed is positive, adding that in SA, the junior sector comprises around 10% of the industry, including both explorers and producers. Moreover, since around 50 000 people are employed in the junior sector, anything that will develop and grow this sector further is a net positive.

“Exploration has an immediate benefit on the economy, because from the outset, an organisation needs to invest in resources and labour, while also paying taxes – so there is an immediate benefit to the fiscus, even without the mine development being completed.

“Apart from the value of the additional tax revenue, a project also impacts the surrounding service industries positively and increases the social benefits nearby communities receive when a mine is built,” he notes.

Deloitte suggests that with access to funding, SA has an opportunity to play an important role in generating supply sources for copper, nickel, rare earth elements, manganese, and other metals.

But with consideration of transformative policies and alignment with infrastructure and logistics initiatives, the country also has an opportunity to institute a strategic position in the development of value chains for critical commodities produced by other African countries, it says.

“As a result of the fact that many of the critical minerals do not yet have mature value chains in Africa, funding of early-stage mining opportunities for these minerals could result in additional strategic development and more certainty of the value chain being developed locally, or regionally,” says McFarlane.