JOHANNESBURG (miningweekly.com) – South African Finance Minister Trevor Manuel’s new incentives for investors in junior mining will be implemented from July 1.

A Government Gazette notice outlines the proposed new legislation that will see a payback on investments in junior mining exploration companies.

Rejected is the previously discussed possible copying of the flow-through share system that is in force in Canada, which has led to a culture of investment in mining exploration that is largely absent in South Africa.

The gazette defines a junior-mining company as any unlisted company or a JSE-listed AltX company, resident in South Africa and engaged solely in mining exploration or in mining production.

The company may not be part of a group and must have its tax affairs in order.

Keaton Energy CEO Paul Miller told Mining Weekly Online that he needed time to study the gazette notice before he could comment.

The same sentiment was expressed to Mining Weekly Online by TWP finance CEO Dean Cunningham.

Several other mining companies that Mining Weekly Online approached for comment were unaware of the gazetting.

The deduction to be allowed during a year may not exceed R2,25-million.

Manuel, in his 2008 Budget speech, called the incentive a "50% deduction", and Treasury officials told Mining Weekly Online at the time that this meant that government would effectively reimburse investors in local junior mining exploration firms one-half of their investment.

In 2006, government said that it was looking at the potential benefits of introducing the Canadian model of flow-through shares to South Africa, in a bid to increase the availability of financing to strengthen the local exploration sector.

It later formed a National Treasury-chaired working group, including the Department of Minerals and Energy, to examine the possible benefits of such a move.

However, a National Treasury official said thereafter that the group found that launching flow-though shares would be "an administrative nightmare".

This was because the South African Revenue Service would end up with an excessive amount of paperwork.

Flow-through shares were pioneered successfully in the Canadian exploration sector, where an exploration company's costs flow through to the shareholders' books so that they can claim tax benefits.

A Treasury official said that, while the scheme could cost government a significant amount of money in the short-term, the long-term rewards would outweigh the short-term expense.

Junior mining firms in South Africa have repeatedly decried the problems they encounter in obtaining mining finance, as local investors have little appetite for exploration risk.

Access to equity finance by small and medium-sized businesses has been cited as one of the main challenges to the growth of the junior mining sector.