RADS

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Funding Challenges For BEEMining
Summit 2008 Motjoli Resources
Nchakha Moloi Nasrec September 2008
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Background

• Transformation and BEE in the mining and minerals
  sector occurs on two parallel fronts
• BEE transactions with target to achieve 26
  ownership in 2014 and continued compliance with
  other pillars of the mining charter
• Prospecting and mining rights granted to BEE
  companies by the DME
• Clause 12 of the MPRDA .. the Minister may
  provide financial assistance to HDPs by taking
  into consideration
• Promote equitable access to nations mineral
  resources
• Financial position of the applicant
• Need to transform the ownership structure
• The Mining Charter provides that
• The industry agrees to assist HDSA companies in
  securing finance to fund participation in an
  amount of R100 billion within the first 5-years.
  Participants agree that beyond the R100
  billion-industry commitment and in pursuance of
  the 26 per cent target, on a willing seller
  willing buyer basis, at fair market value, where
  the mining companies are not at risk, HDSA
  participation will be increased.

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The equity in an empowerment transaction is
usually financed, directly or indirectly, by one
or a combination of the following
BEE party
Vendor
Shareholders of Vendor
DFIs for BBBEE
Empowerment finance can be more innovative in
applying leverage principles
Guaranteeing of mezzanine facility
Allowance of trickle dividend, management fee to
allow funding of BEE equity
Shareholder providing mezzanine facility
Derivative structures
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Progress with BEE in the Minerals Sector

• 2006 was a watershed in transformation as BEE
  gained momentum
• A number of Mining companies received conversion
  of Old Order rights from BEE credits
• A number of black on black BEE transactions
  took place
• 2007 appears to be a historic year in terms of
  the number and value of BEE transactions
  concluded across the board
• Empowerdex study shows (2007)
• 15 BEE transactions worth R24bn to take
  controlling stake
• 58 BEE transactions worth R27bn for passive
  investment
• 13 transactions worth R6.5bn BEE buying other BEE
  stakes
• Worrying trend in 2007 is the increasing number
  of BEE companies that are taken to court by
  their partners and being forced out of
  shareholding

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Funding of exploration and mine development

• The DME has used its regulatory muscle to empower
  a large number of BEEs through the granting of
  prospecting and mining rights
• It is in some cases difficult to demonstrate
  value accrual to BEEs because of financial
  structures of traditional JV agreements
• Source of exploration funding
• Listing
• Own equity
• Strategic partner
• DFIs
• Commercial Banks??????

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What has happened to date

• The DME and a number of industry players played a
  key role in the establishment of the New Africa
  Mining Fund
• SAMDA with a number of industry players spent
  considerable time with National Treasury in
  investigating the possibility of introducing flow
  through shares
• DNT has is looking at a number of possible
  financial instruments targeted at junior
  exploration and mining companies
• The latest initiative by National Treasury is
  investigation the feasibility of a venture
  capital fund
• Is there a case for the establishment of a
  Resources Bank?

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Kea Leboha
www.motjoli.co.za