Listen to the podcast below:

Paul Miller is an ex-investment banker with extensive experience not just in the markets, but in junior mining as well. He understands how important it is for a market to have an active base of retail investors, connecting capital to opportunities and encouraging more listings. Access to capital is the lifeblood for the junior mining sector, but it goes far beyond that.

Through Utshalo, he is working to encourage listed companies to include retail investors in their capital raises, rather than only picking up the phone to a few investors in an accelerated bookbuild.

With Orion Minerals as the perfect example of what can be done in South Africa, Paul joined The Finance Ghost on this podcast to talk about why this is so important and how Utshalo can help. You can find out more about Utshalo at this link.

Utshalo is a division of Ince (Pty) Limited, a juristic representative of Insurance Supermarket Insurance Brokers (Pty) Limited, registration number 2012/044142/07, an Authorised Financial Services Provider, FSP number 43986

Read the transcript below:

The Finance Ghost: Welcome to this episode of Ghost Stories, coming to you from a very cold and rainy Cape Town. I just drove past the vlei near my house, and the water was just about up to the road, actually, which is not something that you see too often. And Paul, maybe we’ll see some money flowing through the JSE like we’ve seen the rain flowing into the rivers here in Cape Town. I don’t know. Time will tell. But if anyone’s going to know, and if anyone’s going to help influence that, it’s you. And it’s very good to have you on the show.

For the listeners today, my guest is Paul Miller, the founder of Utshalo. And Paul, there’s been some really cool press releases about what you’re up to in the past week, and obviously we’ll dig into all of that. But first, let me just welcome you to Ghost Stories and thank you for doing this with me.

Paul Miller: Thanks, I look forward to it.

The Finance Ghost: Let’s start at the beginning, because you’ve got a very interesting history. I mean, you’ve been at the cutting edge of finance, let’s face it, for a long time now. You’ve done investment banking. You ran a JSE-listed company at one point. You are a busy man today with a few business interests as well, one of which is Utshalo, which really comes from your experience in the markets and obviously a passion for that. Let’s just start there.

What drove you to actually start this business? And ultimately, what problem are you trying to solve in the world? Because, of course, that’s what makes a startup a startup, right? A burning desire to solve a problem.

Paul Miller: Absolutely. I had a most wonderful time as a corporate financier working for Nedbank prior to the global financial crisis. I was in the corporate finance team and what I really enjoyed was equity capital markets and equity capital raising. I had previously been a management consultant, spent some time on the mines, and I was asked to be a mining specialist. So I became a mining specialist equity capital markets corporate financier, and hit that purple patch when everyone was talking about the commodity super cycle and the new mineral rights regime in South Africa had driven a lot of change in deal making. I pursued raising equity capital for junior miners and bringing junior miners to the JSE as secondary inward dual listings, and had some amazing success. I was the JSE sponsor on Aquarius Platinum, the first new generation inward dual listing. Now we have 60 or so. I led the listing of Eland Platinum, which was a five bagger for the investors who came in originally. I went to Canada and got Canadian listed companies and brought them to the JSE. It was a fantastic time and possibly the highlight of a career. I was then founding managing director of a coal exploration and mine development company and we raised money in the April ahead of the October crash to build a coal mine and supply a ten-year contract to Eskom.

So that was the foundation. I then went coal mining for five years to return to banking afterwards, and then in 2017 went back to the market to raise money with the individual listing of Alphamin Resources. And it was in that ten-year gap that really, when I suppose the terrain had changed under my feet – and it was looking at what had changed between 2007 and 2017 that’s really led to a challenge.

The Finance Ghost: I should have said you were at the coalface, not the cutting edge, because you were literally at the coalface for quite some time. That’s a pretty fascinating career.

Paul, obviously there’s a piece of me that’s quite jealous that you got to do this pre-global financial crisis. I’ve only ever known post-global financial crisis. I finished university in 2010 and then did my articles and then did my years in corporate finance. So I only really saw a market that was just so much harder to raise equity capital in. In 2014 to 2017, if you were a property fund, you could phone up Java and basically have your money an hour later in an accelerated bookbuild. And even that’s not so easy anymore. We’ll get into one of the property capital raises just now. But generally speaking, we’ve seen obviously a big knock to the ability to raise capital on the local market for whatever reason. And maybe this government of national unity and improved sentiment will make it better. But the reality is that if companies struggle to raise money, the motivation for being listed takes a serious dive. Listing is not a great way to achieve an exit for your shareholders because they’re either locked in for a period of time or they have to keep announcing to the market every time they go through a 5% threshold. It’s like sending a massive smoke signal to say “hey sorry, I’m selling”. And then investors follow as well and the share price crashes. So listing is not great for exiting; it’s really good for raising capital. I mean that’s the point. That is what listing is really all about. And from what you’re saying, it feels like some of that has really fallen away since you were involved in the markets.

Paul Miller: No, it had. And I got a cold dose of reality with the Alphamin listing. Think about it. It was a R2 billion market cap company at the time. We were looking to raise R500 million locally. Today, it’s a R19 billion company, and South African institutions would not even see us because the company was too small. Look at what they’ve lost. There were people with mining analyst in their job title who wouldn’t even take the meeting. And today it’s a R19 billion company and all that value has gone to Canadians. So that was the experience at the time.

But if you look at how the problem was diagnosed at the time, people said it was because the JSE was too expensive, and their rules were too onerous. And I refuse to accept that, as this is a far more complicated problem.

And quite frankly, the JSE is no more onerous and no more expensive than any other exchange. And if you see what has been achieved in Canada and Australia, you realize the hollowness of that description. You then hear people say, no, no, it’s an international trend. It’s happening everywhere. But it isn’t.

It is happening in some other markets. And we can get into the differences between the different markets. But I was concerned that the diagnosis was wrong. So I spent some time pondering it and then when I came up with what I thought was wrong, I wrote a whole series of op eds. Anyone who who would take an op ed on the issue, I wrote for. I think I wrote seven for Daily Maverick, I wrote for the Financial Mail, I wrote for Investors Monthly. I put all my ideas out there for two reasons. One, I needed to test them, and secondly, I wanted people to tell me if I was right or wrong. And I wanted to change the narrative about what was wrong. It could not simply be that the rules were too onerous and the costs were too expensive. Because even if they are, the JSE would at some point improve, and they do all the time. They had multiple initiatives over 20 years to improve their attractiveness.

I then came up with what I thought was the problem. And it was in that process that the inspiration for Utshalo came, because other countries and other markets have similar problems. And there has been a fintech response. So, in the UK, we see PrimaryBid, in Australia we see OnMarket, and we didn’t see a similar thing here. And that’s the gap that we’re trying to fill.

The Finance Ghost: Let’s talk the UK. And maybe before we get into where else, there’s a bit of a listings crisis, because I know the London Stock Exchange is struggling at the moment. You’ve raised the PrimaryBid name. Now, I had never heard of PrimaryBid until literally the past week when I read the Sirius Real Estate capital raise announcements. They’ve done a large private placement in South Africa, which is a very well-trodden path as I referenced earlier. You phone up… well, I referenced the advisor who was leading at the time, but you can find any advisor really, they’ll do the book running for you, make a few phone calls and raise the money. That’s how it works in South Africa. Retail investors kind of get shut out, unfortunately.

Institutional investors can take up the stock and they get it at a discount of a few percentage points to the 30-day VWAP, typically because they need to be incentivized to come in. And it’s frustrating obviously, because for retail investors they often get shut out and that clearly is your mission in this world. And again, we’ll talk about what you’re busy doing with Orion Minerals just now. Let’s just do Sirius Real Estate quickly because PrimaryBid is a name that is now familiar to someone who is reading every SENS announcement, as I do, and they’ve raised, or they are raising as we speak, a little bit of retail investor capital in the UK market, but nothing in South Africa. And Sirius is such a well-known name in South Africa. And perhaps most frustratingly, it’s a well-respected name because they do a lot of great stuff with their portfolio in Europe and it’s not hard to find a South African investor looking to diversify with offshore exposure. You would think that there would be no shortage of demand to come in and grab the shares at a small discount to the VWAP, and yet they haven’t done it. Why is that? Why do you think that is?

Paul Miller: People blame the Companies act, and yet if you look at the exclusions that are copy and pasted into every regulatory document relating to section 96 of the Companies Act, I think our advisors and lawyers in South Africa got it wrong and it’s copy and pasted from one document to the next. And it says that we can’t make this offer to the public at large. Or alternatively, if we do, they can only come in for more than a million rand each. But they don’t read it carefully enough. Because what are institutions?

Institutions are agents for the investors who place their money with that institution. And stockbrokers and financial services providers and banks are all licensed to act as agents for retail investors and they all exempt from the public offer restrictions in the Companies Act. So Utshalo is a financial services provider and we are duly licensed to offer the service that we do and we believe we’ve threaded the needle, that we can provide retail investors as their agents with access to private placements, for example, and that the restriction on offering to the public in South Africa is massively overplayed. In that accelerated book build that Sirius did, they would have gone to wealth managers, for example, who would have gone to their clients, who would have raised money from their clients. The issue is our stockbrokers, our stockbrokers don’t want to put offers for smaller companies in front of their clients. And the reason they can’t do that is they’ve actually morphed into asset managers. And asset managers have to show a process and apply skills and experience for every investment recommendation they make. So they won’t phone you to say Orion Minerals is doing a placement because they have to go and write a 40 page report and put it to a committee. And that’s expensive. And why would they do that? They far prefer to just put you in the top hundred companies. So that’s the gap we try to fill. We’re trying to reconnect real retail investors who are managing their own money with companies. And that’s what we believe is broken. And one of the things that’s broken in our market.

The Finance Ghost: Yeah, it’s fascinating. I mean, whether or not Sirius phoned wealth managers, obviously you or I will never truly know. They might have even phoned just the four or five biggest institutions and they just said, thank you very much, we’ll take it. Because to your point, there’s a real issue around the level of research around stocks on the market. And Sirius is big. Theres no shortage of understanding of that thing. And even then, you don’t really see this kind of scenario where to your point, brokers are actively taking this to clients. It’s just this broader challenge where you can’t have that infrastructure unless you have regular capital raising of size, like the environment you came from pre-global financial crisis. And yet here we are with Orion Minerals, who is working with you now, and I think we should get into that now, raising through what they call a share purchase plan, which I thought was super interesting when I saw it come up. And I’m very keen to understand, I guess, firstly, how that works from a regulatory perspective. Why are they able to do this? What is the trick here? What makes it work? And then what is your involvement as Utshalo? Because for other listed companies and advisors listening to this and wondering how they can make this work, I think it’s well worth spending the time on how you’ve done this with Orion Minerals.

Paul Miller: Yes, and what’s the difference between what Orion Minerals is doing and what Sirius chose not to do?

So, Sirius is primarily a UK company, I think, and the offer is to UK retail investors and their offer on PrimaryBid is to any retail investors. Right? So it’s to the existing shareholders and anyone else who wants to participate. And on the face of it, that looks like a public offer. So to replicate it in South Africa, it’s very easy for a conservative lawyer in Sandton to say, no, no, you can’t do a public offer without issuing a prospectus. It’s going to take six weeks to do the prospectus and get it registered with CIPC. And CIPC is not any good. And then you have to have it open for 15 days and then you can close it. So that’s what probably might well have been the advice they got. And they said, well, we couldn’t be bothered then to do it to retail investors in South Africa. Except, of course, what Orion Minerals has done is, from a South African regulatory point of view, they haven’t made an offer to the public, they’ve made an offer to the existing shareholders and the existing shareholders are not the public. It just happens that Orion uniquely has 22,000 retail investors or 22,000 investors in total. So what is allowed in Australia is when you do the equivalent of an accelerated book build to professional investors, you can then, on the same terms, extend that offer to your existing clients who perhaps didn’t have the liquidity or couldn’t do it quickly or couldn’t just tick a box on, or better still, answer on a recorded telephone line that they’d participate. And then you can take your time, two, three weeks, to raise the money from your own investors who you can take the time and you can do it slowly on the same terms. So that’s what Orion has done and it’s manifestly fairer to your existing shareholders.

And what Sirius has done, I would suggest, is unfair – I mean, the unfairness of it is obvious. They are offering shares to only the UK sub register and not to the South African sub register. Are shareholders not meant to be equal?

And I think it’s a lack of imagination of the South African advisors to Sirius who probably told them that they couldn’t do it here. And I believe you can do it here. We are leading the way with Orion because here we found a company that’s saying, well, actually we owe a responsibility to our 22,000 existing shareholders. They bought shares in us. In fact, they’ve bought 49% of the company, and most of it’s flowed over from Australia to South Africa. We owe a responsibility to those shareholders.

And let’s face it, you know that all our advisors in South Africa have signed up to the financial sector code which requires them to promote financial inclusion. How is what Sirius’ advisors suggested to them promoting financial inclusion in South Africa?

The Finance Ghost: I think the passion you’ve got for it, Paul, is clear. I mean, yeah, we’ll never really know what advice Sirius was given and it sounds like we’re picking on this one company. Unfortunately, they’re just the latest example. And maybe the difference there is that they actually thought to do, you know, a retail raise as well. They just thought to do it somewhere other than in South Africa. And maybe that’s why it really just sticks out as an exception. I suppose for Orion, it’s just wonderful to see that they are including retail investors in this because technically speaking, do they have to? There’s no way to say for sure whether or not they could raise that money from institutions. And I guess companies will look at that. That’s going to be a business decision at the end of the day. How easy is it for us to raise from instos for big property companies? It’s very easy. How easy is it to raise from institutions as a junior mining house? I guess it’s that much harder.

In a perfect world, obviously we want every company to look at this and say, hey, retail investor participation is important and worthwhile and we are going to carve out a piece for this. But the practicalities are the practicalities. So I guess that leads me to my next question, which is just how much work is it to actually add on a retail raise to an accelerated book build? As Orion Minerals has done.

Paul Miller: That’s the gap we’re trying to fill. Because there hasn’t been anyone to do that work and it’s administratively intensive and of course we’ve got to do things like, because we are a financial services provider, we’ve got to FICA people, you know, so we’ve got to build the tech to do that in a seamless and frictionless way as possible. And we’ve done that. But I think we need to take a slightly more philosophical view here. We’ve got a problem. There’s a structural issue with participation in our stock exchange. We’ve got an overwhelming dominance of the top hundred companies in all the trade and more importantly, ten institutions.

Institutional groups manage 90% of all savings in South Africa. Now, if we want the JSE to shrink down to 100 or fewer companies, very big companies, and if we want to deny that our public markets are public, in other words, we need to just admit that the institutional markets, those ten institutions, must get all the business they must continue to charge amongst the highest retail asset management charges in the world. If we are happy with that situation, then the advisory community out there must continue to deny participation to retail investors on the stock exchange, because that’s what’s happening now. The same institutions that have signed up to promote financial inclusion are actively working against financial inclusion. I think it’s a very serious question that needs to be asked to all those advisory teams, the complete lack of imagination on how to include people in the public markets rather than exclude them. And everyone says, no, no, no, we shouldn’t have to do anything. We can just raise the money from institutions. Yes. And when the market cycle turns against you and the institutions are selling out, who’s going to buy? Where’s the liquidity going to come from?

I think we collectively have a responsibility to try and fix what I believe is a structural issue on the stock exchange. And one way of fixing it is to bring in as diverse a range of investors as possible, and not leave it to the ten institutions that manage the vast majority of the funds that have a massive bias to the large and the liquid.

The Finance Ghost: Yup, those are all great points. Absolutely. So how does Utshalo do that? How do you help to solve this problem?

Paul Miller: Ghost, you’re too young. But even I can remember when you used to fill out a form in the newspaper that was appended to a prospectus. You would attach a cheque and post it to the transfer secretary. And the transfer secretary would send you your share certificate. So that’s the process. But in a digital first, low friction way, where we can directly reach the investors with digital marketing, email campaigns, WhatsApps, all the modern ways that you can do that, and they can submit their form to us. Of course, there’s extra layers of regulation these days around FICA and things, but we can do that as seamlessly as possible. And in the back-end facilitate the posting of the cheque, which is these days, electronic settlement. So that’s what we aim to do.

We are a fully licensed financial services provider, so there are opportunities for us, for example, to allow our members of Utshalo, because people sign up to become a member, to participate in private placings, for example, at less than a million rand each. This is possible. We’ve threaded the needle also to provide issuers with a one-stop shop where they can go and get that full service in one place. You don’t have to go and see all 30 or 40 stockbrokers on the stock exchange. Just come to us, we’ll handle it and handle the settlement. And the shares go into the investors stockbroking account and they can continue to trade in the secondary market as they always have. We’re not a stockbroker. We don’t have any interest in secondary trade.

So that’s the gap we fill. I don’t claim it to be entirely novel. It exists in other markets as well. But it’s a first for here in South Africa. And what’s interesting is we launched this Orion thing just this week, right. And the number of people who signing up on our website has actually been quite surprising. So there’s definitely interest out there.

The Finance Ghost: Yeah, I think there’s a ton of interest out there. I mean, South Africans are always looking for ways to move forward. I think that’s true for us as a nation, genuinely. And that’s part of why I’m so passionate about what I do. And I can see the amount of passion you have for what you do. It’s the startup founder’s curse. We both have it; we each feel very passionately about the things that we’re trying to bring to the market at the end of the day, because the markets are just this wonderful way for a country to move forward.

I mean, we are obviously both dyed in the wool capitalists. And if you can connect money to opportunities, you grow an economy, you create jobs, and you drive wealth. And that is desperately what South Africa needs above all else. I think the work you’re doing is fantastic. And I think for advisors and issuers, that is, listed companies that are listening to this, you know, reach out to Paul, it costs you nothing. It doesn’t hurt you at all. You know, just have the conversation and consider how to actually bring your retail base into your next capital raise or into your thinking at least, and help to drive a vibrant market, which is, at the end of the day, what we all desperately want to see, right?

Paul Miller: No, absolutely. But I think we also need to appreciate South Africa’s mineral endowment and its highly developed capital markets are two of our most fundamental advantages. And junior mining has two sides to its coin. On one side the mineral endowment. On the other side is access to capital. And we need to bring those two things together. Now, Utshalo is not exclusively about junior mining. It’s just that junior mining happens to be the sort of capital-intensive industry that most often needs to raise money. We are open to all companies.

And just by way of background, by the way, the term is a Zulu or Xhosa term to sow a seed. And it’s used in the context of “utshalo imali”, which is to, to invest money. And it’s the root of the modern word for investment. And I think that’s a wonderful reference back to what primary capital raising is about. It’s where you take money from investors and actually put it in the ground.

You invest it in projects or infrastructure or mines and grow something from it. And that’s the reference, of course, also helps that it’s entirely unique, so the search engines will always find it. So we like that too.

The Finance Ghost: Yeah, that does help. Right? That never hurts to make your SEO a little bit easier. But I love it. I love the sentiment.

Paul Miller: So that’s where people can reach us, right? Ghost, they can just search Utshalo and they will come up on our website. They can sign up there as an investor or contact us as an issuer. And we, I mean, this is a passion project for me. I’ve been at it for three years. We’ve got the regulatory approval. This is our first transaction. People are beginning to sign up and I’m really looking forward to the sentiment changing, bringing more IPOs, new listings, book builds, liquidity placements. There’s a whole range of things that we can give to issuers. And I think the final point from my side is just to say that we are paid by the issuer and there’s no cost to the investors.

The Finance Ghost: I think that is a fantastic place for us to finish it. So Paul, thank you. This has been a really great discussion. As I say, I think the passion that you have for this thing just really comes through clearly. And to those listening, I would encourage you go check out that Utshalo website. Reach out to Paul. And Paul, I really hope that the Orion raise will be a great success. Obviously I’ll see the results of that on SENS at some point. And I hope to see more and more of this coming through so that South Africans can participate in their economy to a much greater extent. So thank you for what you are doing and good luck. It’ll be really great to see it work.