Sentula Mining has had a long and chequered history since it first listed on the Johannesburg Stock Exchange (JSE) back in 1993 under its former name Scharrig Mining. Fast forward to today and the company is once again in the process of changing its name, after emerging out of a genuinely catastrophic decade marked by serious fraud accusations and a collapse in commodities prices. Therefore, in June of this year, CEO Jacques Badenhorst and his team informed the JSE that it will be referred to as Unicorn Capital Partners going forward, in a cathartic move that is also emblematic of the deep restructuring process which has seen the firm transition from a contract miner to an investment holding company.
Under its original name Scharrig Mining, the company was primarily a contract mining operation, providing such services to major mining houses working across sub-Saharan Africa such as Anglo American, BHP and Glencore.
Having tasted success in this area over the turn of the century, the company’s shareholders decided to continue building the company through the acquisition and ownership of mining services companies and mines alongside its contract mining services.
Over the course of the global commodities boom between 2002 and 2007, the company grew to a considerable size, with a peak market capitalisation of around R12-13 billion in 2007. However, this figure soon proved to be a false dawn for the business.
It quickly emerged that the company was at the centre of a major fraud scandal at executive level involving big numbers. The timing of these revelations could not have been much worse either, arriving at the peak of the commodity cycle, and just prior to the price collapse.
A non-stop downward spiral
“From 2008 to 2015, until my partners and I became involved in the business, it was basically in a non-stop downward spiral,” recalls Badenhorst.
“The business was slowly being liquidated as far as assets were concerned, which was the process followed to settle significant debt at group level. It was basically a battle for survival in this period.”
With the commodity market in constant decline and the banks circling, revenues began to slide, operating margins disappeared and Sentula could do little to arrest its descent into the abyss.
“The business started making significant losses and it became a self-fulfilling prophecy, making more losses, having to liquidate more assets, all the while the banks became more worried in the process.”
By 2015, the company’s market cap bottomed at just R80 million, a far cry from its apex valuation just eight years prior.
However, when Badenhorst was drafted in towards the end of 2015, the first thing he did was identify which areas of the business were haemorrhaging money. He quickly concluded that the contract mining business was doing exactly that.
“The contract mining operations was where the bulk of the losses of the group were being generated,” contends the CEO.
“They were basically killing all the group businesses and sucking up all the surplus cash because it was making losses. The other businesses were generating surplus cash, but all this was used to finance the losses or to repay debt.”
Consequently, between October 2015 and December 2016, he went about closing down all of the company’s contract mining operations, a painful process which only ended in June of this year when the bleeding was finally stopped.
“The disposal of assets has taken us up to now, the final clear out. But the actual losses were capped last year when we closed down the business, retrenched all the people and sold all the assets to another entity.”
Streamlining and consolidating
After clearing out the vast majority of its contract mining business, the next step for Sentula was to consolidate the remaining businesses and assets on its portfolio.
Sentula’s portfolio is predominantly comprised of three companies which operate in different sub-sectors and in different jurisdictions across Southern Africa, while the business also runs a coal mine in South Africa.
Firstly, Sentula has made investments into its drilling and blasting business JEF Drill and Blast, which serves the major mining houses in the South African coal industry. It recently acquired 19 additional drill rigs, creating additional capacity on the way to securing new contracts.
Geosearch International is another drilling and exploration company in Sentula’s portfolio which has been stabilised after a difficult recent period. The company has operations in Mozambique, working with Vale on a major coal mine which recently came out of care and maintenance.
Sentula is working to ensure costs are kept to an absolute minimum as Vale increases its activity at the mine. Overall prospects are promising as the coal price slowly recovers.
The group has also made sustained attempts to develop its crane hire business, recently making investments in additional cranes as the market began to pick up towards the end of last year.
“Since then the overall performance of Richie Crane Hire has improved and we’ve been able to get the additional contracts we were hoping for, so the crane business is currently on a very good footing.”
Generally speaking, business is slowly returning across the board within Sentula’s portfolio, as prices rise in the commodities sector across sub-Saharan Africa and mining firms respond with new tenders for projects.
Back to black
After making losses for five straight years, Sentula’s balance sheet will remain somewhat messy for a while, but Badenhorst is confident that the company’s financial woes have been consigned to the past and is now finally back in a good position to make profit.
“The history of losses will end with this set of financials,” he proclaims. “I think all individual businesses have been cleaned up, the group has been cleaned up and we don’t have any big black holes or businesses that are sucking up profits and making losses”.
“We have settled the bulk of our debt, we’ve got only overdraft debt and asset financing debt left, which is productive debt. All the unproductive debt of the past has been repaid.”
Over the next 12 months, Sentula is focusing its efforts on developing its South African anthracite coal mine. The group is aiming to reopen the underground facility at Nkomati and increase its wash plant capacity by about 150%, which should boost overall performance at the mine when work is completed early next year.
Sentula is currently tip-toeing on the periphery of a new era in the group’s history, which is signified by its change of name to Unicorn Capital Partners, emblematic of its transition from contract miner to investment holding company.
Under this new direction, the company will move into different sub-sectors and industries across sub-Saharan Africa, but for now the overall aim will be to return its operating companies to profit, a notion which seemed impossible just two years ago. This is a measure of just how far Sentula has come under Badenhorst’s guidance in this short time.