Siviwe Dongwana, Bongani Nkasana and Fikile Mhlontlo, CFO at Delta Property Fund, joined Michael Avery to offer crucial advice for CFOs. Prioritise a comprehensive business health check to proactively address potential financial risks
Siviwe Dongwana joining SAICA in unpacking the 2025 SA Budget Speech
Published on Creamer Media’s Mining Weekly
The basic economic problem that confronts all businesses is limited resources for unlimited wants. For some smaller mining companies, the reality is particularly acute – not every business possesses the balance sheet strength required to fuel growth, thus making strategic leveraging vital.
However, debt is expensive and introduces specific risks that include fixed repayment schedules, collateral requirements, extensive reporting obligations to lenders, and severe consequences for default not to mention the management time to deal with such consequences. The weight of these obligations can quickly become overwhelming when market conditions shift unfavourably.
The inability to service debt obligations is amongst the leading causes of many business failures, often culminating in business rescue or liquidation. Unfortunately, by the time many companies enter business rescue proceedings, the damage is often beyond repair. What might have been salvageable with early intervention becomes terminal through delayed action.
Miners have additional complexities which include commodity price volatility that can rapidly change project economics, exchange rate fluctuations that impact both costs and revenues, capital-intensive development phases with delayed revenue generation and onerous payment terms from suppliers and contractors and rising financing costs in response to perceived risk. These sector-specific challenges can create a perfect storm when overlaid with standard business financing pressures.
Consider this health analogy of addressing illness. Successful treatment requires both the right medicine and sufficient time. Time can be more important than the medicine itself as having time allows exploration of various treatment approaches. Similarly, even the most effective financial restructuring cannot save a business if implemented too late. The window for meaningful intervention narrows as financial distress deepens.
Assistance from restructuring professionals offers significant advantages; however, many companies are reluctant to seek help. Some believe that they have the internal capability to resolve the problems by themselves, viewing external assistance as unnecessary or as an admission of failure. This perception often proves costly, as internal teams may lack the specialized expertise or objectivity needed to navigate acute financial distress.
External advice is generally sought after the intervention by bankers, lenders and in some cases on the advice of insolvency lawyers. By this point, options have typically narrowed considerably, and stakeholder confidence may have eroded beyond recovery. The delay frequently results in more drastic measures becoming necessary when earlier, gentler interventions might have sufficed.
Accepting that companies operate in an ecosystem of relationships, stakeholder engagement is vital for success and must be undertaken constantly. Of further equal importance is a recognition of the domino effect of failing to make consistent payments which can be dire to smaller suppliers who themselves may operate on tight margins. Often, relationships get strained and soured due to late or non-payment to trade creditors. To this end, the mending relationships and restoring trust is vital to maintain operational continuity during restructuring efforts.
Restructuring professionals understand the concerns and interests of all relevant parties. They professionally work towards aligning competing interests, preserving critical relationships and assisting with complex creditor negotiations while maintaining operational focus, through properly developed restructuring plans. Their experience across multiple situations provides valuable perspectives that purely internal teams typically cannot match.
It is for these reasons that early interventions are necessary to bring fresh eyes and approaches to resolve problems and potentially open different angles and other avenues to tackle the issues at hand including identifying blind spots that management teams, immersed in day-to-day operations, might miss.
In the cyclical mining sector, operational or balance sheet restructuring is certainly not an admission of failure but rather a strategic tool for navigating market volatility. It represents prudent management in an industry characterised by boom-and-bust cycles, where flexibility and adaptability are essential virtues.
Early intervention creates the time and space needed for thoughtful, comprehensive solutions that protect stakeholder value and position companies for future growth. For junior miners especially, timely restructuring can mean the difference between extinction and emergence as stronger, more resilient enterprises positioned to capitalize when commodity cycles inevitably turn favourable again.
Edited by Creamer Media Reporter
Bongani Nkasana, a panel member at the 2024 SARIPA Conference.
Topic of discussion: – Business rescue and insolvency practitioners each have a tool kit available to assist them in managing a wide variety of contractual relationships. The panel explored how these tools operate in a dynamic and increasingly complex restructuring environment.
We hosted a panel discussion at the Finance Indaba moderated by well-known financial journalist Michael Avery; providing a business distress alert!- Learn from others’ mistakes so you don’t repeat them.
Published on Moneyweb
The need for short-term funding for a mature business can become a lengthy and costly process for management to simply maintain the status quo, or it can be turned into an opportunity to fundamentally re-energise operations for growth.
In any mature business, there will come a time when an independent review is needed: a robust review of the core business, the operational structures and processes, quality of reporting ,including budgeting, forecasting and results management and a general assessment of decision-making processes and delegations. This process naturally looks at decisions that may have been made some time in the past and assess their continued relevance.
This review may be prompted by the discovery that the business, though well-functioning, needs additional short-term funding to maintain its operational activities. The reason for the short-term funding requirement may appear innocuous, for example, it may arise from a significant payment delay from a debtor or supply chain issues resulting in late delivery of components and so undermine sales.
These indicators should however be properly scrutinized. They are not usually stand-alone events and may have ‘history tails’ that could reveal some deep-seated flaws in the business.
Often, the need for funding is simply recorded in the board pack as an operational “speed bump” and the administrative process to secure the funding begins. Depending on the size of the short-term funding required, management turns its attention to setting up meetings with new or current debt originators, and redrafting cash flows and forecasts on the assumption that the requisite funding will be secured. The exercise may involve applying for short-term bridging facility, or requesting a reprieve from a long-term payment plan or a payment holiday on an existing debt facility and including revised payment arrangements with creditors. Management may even consider liquidating a non-core asset to generate some cash flow in the short term.
The cash flow injection over the short term is often not the panacea that management may believe it is. Funding rarely arrives on time or in full and new short-term loan terms are likely to be more onerous than for existing facilities. It is also not uncommon that a request for short-term funding triggers a broader review of all the company’s debt facilities and an assessment of its continued ability to repay. The exercise usually involves further costs, including on lawyers, accountants and covenant reviews and, importantly, it distracts management from its operational focus.
This could be the right time to consider an independent review of the business by competent and experienced restructuring advisors. The need for funding over the short term may well be an operational issue that is part of a legacy system that has not been reviewed or changed over time. The independent business review should provide insights on the business including its pricing, product or service range, the competitor landscape and the economic environment and, more importantly, an objective assessment of how all these issues affect the company’s working capital.
The power of an independent review of the business lies in the fact that the restructuring advisors have no allegiance to the management or the board of the business, ensuring that report backs are objective and robust. The report often reveals that a problem that initially manifested as a requirement for funding over the short term to ‘maintain’ the business could be turned into an opportunity to fundamentally restructure the business for growth.
The conscious, deliberate, focussed and robust review of the business’s operations could be an opportunity to review costs, the staff complement, cut a product line or even exit a market.
In fact, the exercise may move from a “maintain” requirement to a “growth” opportunity, as a change in strategy becomes the focus. The initial requirement for funding over the short term may turn out to be the beginning of a whole new era for the business, if management and the board provide the opportunity for a structural shakedown.
