Boardroom - Industrial Development Corporation Access Newsletter

You are here: Boardroom

IDC access - February 2010

From the boardroom

Ufikile Khumalo

Facilitating growth

The credit crisis has led to shortage of funding for mining projects, but the IDC is helping to ease the pressure.

Divisional Executive of Resource Sectors, Ufikile Khumalo reported back to industry players and the media at the recent Mining Indaba.

Equity to fund Greenfield projects has always been in short supply. After the financial crisis, the conditions have been even more difficult, although they are easing. Global commodity prices rebounded very quickly from their financial crisis-induced lows towards the end of 2008. However, price increases in 2010 is likely to be moderate because of significant spare capacity and inventories in the commodity subsectors. Nevertheless, a deepening of the global recovery beyond 2010 and ongoing investment-led growth in emerging and developing markets will continue to support prices.

The IDC’s mining and beneficiation team manages a portfolio worth R22 billion. We have more than 20 people on our team including geologists, mining engineers, metallurgists, project specialists and financial experts who help to assess potential investments. During 2009, the corporation approved R2,2bn worth of projects, helping to create 3000 jobs. In the 2010 year-to-date, we have approved R2,3bn to the mining industry, which has assisted in the creation of about 12 000 jobs.

The IDC provides risk capital to the widest range of mining projects, identifying and supporting opportunities that have a high development impact. We also look to attract local and global partners to be involved in many projects that benefit South Africa and the rest of the continent.

We’ve been involved in a number of successful early-stage mining ventures. For example, we funded Hernic Ferrochrome with early-stage debt finance and became a 21% shareholder. The IDC was also a founding shareholder of Mozal, providing R1 billion in financing. We participated in the listing of Merafe and provided R60 million in financing to Ridge Mining. Kalagadi is our newest entrant, with the project in the early stages of implementation.

Fromtheboardroom __FEB

Although we fund early-stage mining development, we don’t fund exploration. However, we do play a role throughout other early development phases. At this time when there is a shortage of funding, the IDC plays a role in ensuring the development of the mining industry does not stagnate. It’s also important to continue development so that projects are ready to come on stream as the demand for commodities improves. We understand the technical risks involved at early stage development and have the financial resources to assist in minimising project risk.

During 2009, the corporation approved R2,2bn worth of projects, helping to create 3000 jobs.

The IDC’s longer-term objectives are to assist in the development of a vibrant, entrepreneurial junior mining sector in Africa and to take advantage of the liberalisation of mining laws in South Africa and other African countries. To achieve this, the IDC actively seeks partnerships with exploration and mining companies involved in projects throughout the continent. We act as an anchor equity holder who understands the shifting risk profile of a project and who has the ability to provide different sources of funding during the different phases of a project. We provide a suite of tailor-made products including equity, quasi-equity and debt finance. Products also include competitively-priced loans, various mezzanine finance derivatives and direct equity investments.

At the best of times raising funding for resources projects is a complex, challenging task. In the current environment, the options are even more restricted. However, the IDC is very much open for business and can help in delivering the optimum funding structure for appropriate projects in the mining sector.