Business Day article on Junior financing, summarising a discussion at the Junior Indaba held in Joburg.

1. 10 BusinessDay www.businessday.co.za Thursday6June2019
COMPANIES
Phil Fretwell
Managing Director
Protiviti (USA)
Brian Kgomo
Group Executive
Telkom Audit
Services
RSVP: Jackie Duwo
Email: jduwo@skxprotiviti.co.za
Cell: +27 63 359 9864
Dr Claudelle von Eck
Chief Executive Officer
IIA (SA)
Recently recognised by Consulting Magazine as being one of
the top 20 Global Leaders in Consulting.
Protiviti is a global consulting firm that helps companies solve
business problems in technology, business process, analytics, risk,
compliance, transactions and internal audit. Phil is responsible for
Protiviti’s global network of member firms, delivering services
to clients throughout the world. He has led the development
and support of the network for 13 years, growing the number of
countries included from 1 in 2006 to 15 throughout Latin America,
the Middle East, India and South Africa 2019.
Phil is experienced in enterprise risk management, internal
auditing, due diligence and managing the risks of international
expansion. He is a licensed Certified Public Accountant in Florida,
and is a member of the American and Florida Institutes of Certified
Public Accountants and the Institute of Internal Auditors. He has
served as the Chairman of the Board of Junior Achievement
of Central Florida and the President of the University of Central
Florida Accounting Advisory Board. He has also served on the
Florida State University Professional and Advisory Board, the
Board of Directors of the Heart of Florida United Way as a member
of the Executive Committee and the Chairman of the Finance
Committee.
Artificial intelligence, robotics and machine learning
INVITING
Guest Speaker
Panellist Panellist
12-06-2019
09:00-12:00 pm
6 Tottenham Ave,
Melrose Estate, JHB
CHIEF AUDIT EXECUTIVES, CHIEF FINANCIAL
OFFICERS, RISK MANAGEMENT OFFICERS
Admission is free and seats are limited
BLACK INVESTMENT
Grindrod
‘seeking a
partner in
financial
services’
Loni Prinsloo and Roxanne
Henderson
Freight and logistics company
Grindrod is seeking an equity
partner for its financial-services
business to drive an expansion,
according to people familiar
with the matter.
The financial-services divi-
sion — which has a net-asset
value of R1.2bn — is looking for
black investors, said the people,
who asked not to be identified
because the matter was private.
The deal would also provide
additional cash to the lender as it
prepares to beef up its retail
offering in an increasingly com-
petitive sector, they said.
Grindrod Bank is 28% black-
owned, according to its website.
David Polkinghorne, the CEO
of the division, said in e-mail that
it has been investigating growth
opportunities for the business
over the course of the past year.
However, Polkinghorne
declined to elaborate, saying that
the company did not comment
on market speculation.
The sources said that while
Grindrod will consider spinning
off the business from its freight
operations and trade the shares,
this is not immediately planned.
Grindrod spun off its ship-
ping business in 2018.
Grindrod Bank was estab-
lished as a financier of proper-
ties, and it has since expanded
into investment banking, asset
management and also advisory
services.
Further plans to expand the
business were thwarted last
year when the consortium it
formed with Arise lost out to
Capitec Bank in a bid for Caixa
Geral de Depositos’s SA busi-
ness-banking unit.
Grindrod Bank, the eighth-
largest SA lender by assets, also
expanded into retail banking
after it partnered with Net 1
UEPS Technologies to distribute
welfare grants.
The company has since
attempted to retain those cus-
tomers with low-cost accounts
after the government last year
cancelled its arrangement with
Net 1./Bloomberg
Inside the Absa-Barclays divorce
•If it wasn’t for Maria Ramos, Absa might have walked away with only the clothes on its back
Londiwe Buthelezi
A
bsa first got wind
of the plan by
British parent
company
Barclays to sell it
off in an article in London’s
Financial Times (FT) in 2016.
Just three months before the
news piece was published, the
UK banking group had been
pressuring Absa to finalise the
rebranding of its banks in the
rest of Africa under the Barclays
brand. The official
announcement from Barclays
soon followed and set the stage
for a protracted divorce that will
only be completed in 2020.
Absa chair Wendy Lucas-
Bull said at the bank’s AGM on
Tuesday that the bank has
passed the halfway mark in the
separation process, having
moved all its regional banks’
core banking systems from the
UK to SA in April. All digital
systems were moved in May.
But getting there took a lot of
fighting and if it wasn’t for
former CEO Maria Ramos’s
astute negotiating, Absa might
have walked away from
Barclays’s initiated divorce with
only the clothes on its back.
“The first time we heard
about it was in the FT.
“And clearly what that meant
for us was that we knew we
were going to have a very tough
divorce negotiation,” Lucas-Bull
said. She said Barclays was
initially not prepared to pay the
costs that Absa would incur in
moving its operations from the
centralised Barclays systems.
The volume of work Absa
had to do to move its banking
systems from London to
Johannesburg, and the cost to
rebuild the capacity it had
relinquished due to
centralisation at Barclays, would
have hit the bank’s balance
sheet hard if it had to finance it.
Barclays’s argument was that as
a listed company, Absa should
be able to raise capital by
issuing more shares.
With Ramos acting as chief
negotiator, Barclays agreed after
much arguing that it would pay
Absa £765m to finance the
separation of the two banks’
systems. Barclays paid the
amount upfront, which
benefited Absa as it is earning
interest on it.
Lucas-Bull said this was
Absa’s biggest victory as it
allowed the bank to reset itself
and fund the “Africanacity”
strategy it unveiled in
December 2018.
Despite all the value-adds
and re-engineering of its
systems, Absa said it has not
had to invest its own money to
manage the separation or
rebrand itself.
“But we expect it [the
settlement] to be cash flow and
balance sheet neutral over
time,” Lucas-Bull said, adding
that the bank excludes the
interest it earns on the
settlement or the return on
earnings it receives from
additional capital investment on
its normalised earnings.
The big victory was secured
and big-ticket items have been
ticked off, but Absa still has
some way to go before
achieving a clean break from
Barclays. Its regional banks in
the rest of Africa still carry the
Barclays brand. The
bank has until mid-2020 to
rebrand them.
In SA, the key remaining
milestones are the migration of
the corporate and investment
banking systems, including
trading platforms, from London
to Johannesburg. The bank is
also yet to move its human
resources system.
buthelezil@businesslive.co.za
JUNIOR MINING INDABA
How do junior miners
ride exploration wave?
Lisa Steyn
Global mining explo-
ration budgets are
rebounding after some
lean years and are expected to
grow by as much as 10% in 2019.
Yet SA continues to miss out on
its fair share of exploration
investment, which has steadily
declined over the past decade.
These sad circumstances
prompted minister of mineral
resources & energy Gwede
Mantashe to call on investors to
put money into exploration at
the opening of the Junior Mining
Indaba this week.
But as the conference closed
on Wednesday, the pertinent
question of how exactly to
attract this elusive capital
remained.
A panel of investment gurus
at the indaba agreed that junior
miners in SA need to rethink
their strategies if they hope to
attract investors into this high-
risk space.
Just as readily as junior min-
ers might ask “where is the
money?”, investors could ask
“where did the money go?” said
James Campbell, MD of project
developer Botswana Diamonds.
Sasha Keen, director of Aus-
tralian asset management firm
Noah’s Rule, agreed that a great
many have invested in junior
mining only to lose it all.
Robert Philpot, partner at
corporate advisory boutique
Qinisele Resources, said there is
now a desperate need for junior
mining success stories on the
JSE to get institutional investors
interested again.
Keen said junior miners have
to generate returns to draw
investors back into funding such
projects. And on top of that,
funding solutions have to get
more creative.
Olebogeng Sentsho, CEO of
Simba Mgodi Fund, an incubator
for emerging entrepreneurs,
said investors are disregarding
the rapid development of new
technologies. “We have $2.5-
trillion worth of minerals
beneath our feet. What we are
failing to recognise is, at this
point technology is moving so
quickly, it’s likely the biggest dis-
coveries are yet to be made.”
Sentsho suggested junior
miners embrace what she calls
the “democratising of capital”,
which entails tapping a variety
of funding sources, including
non-traditional sources such as
crowdfunding, which is used by
junior miners in Canada.
OVERPROMISED
Philpot said junior miners in SA
who have been successful in
raising funds are those that have
been realistic and honest.
“Too many have over-
promised and underdelivered,”
he said in explaining the aver-
sion to funding such projects.
Keen agreed, noting that
there is often a healthy dose of
“fantasy” in the presentations he
sees from junior miners in
search of funds.
EXPLORATION REBOUND
Graphic: DOROTHY KGOSI Picture: 123RF/SOLOVYOV ANDRIY Sources: S&P GLOBAL and STOCKHEAD
06 090807 15 1817161110 1413121996 999897 020100 050403
24
21
18
15
12
9
6
3
0
4
3
2
1
0
Estimated global nonferrous exploration budget
Annual indexed metals price (1996=1)
Campbell said junior miners
seeking investment have to be
prepared to put their own necks
on the line. “You have to put your
own money in, no-one will
believe you unless you do so.”
Having at least a little bit of
local money invested in a pro-
ject is also a good idea, he said.
Philpot, however, noted that
for the right project there would
always be money available.
Sentsho said much could be
done to help junior miners suc-
ceed in SA.
For example, a stock
exchange for exploration com-
panies should be considered,
while a bank devoted to mining
could also free up capital for
junior mining endeavours.
The government should
review its section 12J incentive,
which gives tax breaks for those
investing in high-risk projects. It
has so far failed to attract much
investment in junior mining.
Further incentives for those
investing specifically in the
exploration space should be
considered, Sentsho said.
The experts agreed a robust
policy framework is also key for
junior mining to thrive.
The government has made
moves to revive junior activity
by exempting exploration activi-
ty from the BEE requirements of
the new Mining Charter.
steynl@businesslive.co.za
THERE IS NOW A
DESPERATE NEED FOR
SUCCESS STORIES ON
THE JSE TO GET
INSTITUTIONAL
INVESTORS
INTERESTED AGAIN
STONEHAGE FLEMING
Tech stocks ‘poised for a comeback’
Nick Hedley
Technology stocks, which have
fallen sharply in recent weeks
on heightened regulatory scru-
tiny and ongoing trade tensions,
are poised for a recovery,
according to Gerrit Smit, head of
equity at international family
office Stonehage Fleming.
Despite rallying 2.7% on
Tuesday after US Federal
Reserve chair Jerome Powell
said the central bank could cut
rates, the tech-heavy Nasdaq
Composite remained 7.8% down
from its close on May 3.
Tech stocks — including JSE-
heavyweight Naspers and its
Chinese associate, Tencent —
have been on the back foot for
weeks amid trade disputes
between the US and other
major economies.
Tencent has slipped 14.6%
since May 3, while Naspers has
declined about 9%, propped up
by the weaker rand and plans to
list its international internet
assets in Europe.
Naspers’s decline has dented
the JSE, given its hefty weighting
in local indices.
The tech sell-off intensified
on Monday after US authorities
signaled their intention to
curb the size and power of sec-
tor giants.
“The antitrust probes will
affect only some businesses to
some extent, and it may take
very long before that happens,”
said Smit. “In those cases, valua-
tions already reflect some of
those risks.”
Compared to the antitrust
case Microsoft encountered in
2009, circumstances “are very
different — we do not have an
overheated tech bubble as was
the case then”.
Sharp corrections in the tech
sector occur relatively fre-
quently every year, Smit said.
“We expect tech stocks to
make a comeback.”
The tech bubble at the turn of
the millennium was driven by
“hope” rather than profitability.
Today, many businesses in
the sector generate strong cash
flows and dividends, and are
“ingrained in business and
daily life”.
“Valuations are not as
excessive as generally thought,”
Smit said.
US-listed tech stocks were
trading cheaper than the
broader market on free cash
flow multiples. On a price-to-
earnings basis, premiums were
not excessive considering the
sector’s “good earnings growth
potential”, he said.
hedleyn@businesslive.co.za
STILL SOME WAY TO GO
Graphic: DOROTHY KGOSI Picture: LETTIE FERREIRA Source: IRESS
ABSA
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SA
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16650Close
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MARIA RAMOS
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ZAMBIAN MINING
Threat to close top
copper producer
Agency Staff
Lusaka
Zambian President Edgar Lungu
said on Tuesday he would dis-
solve KCM, his country’s largest
copper producer.
This comes amid a deepen-
ing dispute with foreign mining
groups on tax and jobs.
KCM is owned by London-
based Vedanta Resources, with
state-owned ZCCM-IH as a
minority shareholder.
Lungu has targeted the min-
ing sector to boost tax revenue
as Zambia struggles with rising
debt. He has told international
mining groups to leave the
copper-rich country if they
oppose the new tax regime. “We
are resolved and determined on
the KCM liquidation process
because all people in the Cop-
perbelt (mining region) want
Vedanta to go,” Lungu said.
“This is not my decision alone
but the people, and I will not
abandon you on KCM,” he told
supporters in Ndola. A court
hearing in Lusaka on the
appointment of a provisional liq-
uidator to run KCM, which
employs 13,000 people, was
adjourned for a week on Tues-
day. “Vedanta reiterated its com-
mitment to Zambia, and to the
development and sustainability
of Konkola Copper Mines,”
Vedanta said last week. It said
the government made
“unfounded allegations” about
unpaid taxes and that its busi-
ness was unprofitable due to
rising tax and electricity bills.
Companies say the proposals
could trigger mass withdrawal
of investment and thousands of
redundancies. “KCM is the single
largest employer in the country
and the impact of this liquidation
could be devastating,” said busi-
ness analyst Maambo Hamaun-
du. “A few weeks ago we were
given pronouncements by gov-
ernment officials that the mine
was working properly but sud-
denly it's being liquidated.”
Foreign investors are appre-
hensive. Zambia is Africa's sec-
ond biggest copper-producing
country after the DRC. Vedanta,
owned by Indian billionaire Anil
Agarwal, is seeking international
arbitration to resolve the dis-
pute. Some analysts say a Chi-
nese firm may replace it. / AFP
14.6%
the level
which
Tencent has
slipped since
May 3, while
Naspers has
declined
about 9%
Big stick:
President
Edgar Lungu
says he will
dissolve
Zambia’s
biggest
copper
producer.
/Reuters