New 100% junior mining tax write-off, second wave of BEE may be harder, Pamodzi trying to avoid full liquidation

South African Finance Minister Trevor Manuel’s July 1 tax-break introduction for investment in support of junior mining is seen as an attempt to create a new class of investor that is “generously incentivised” to support the bottom end of the junior mining scale.

Read on page 11 of this edition of Mining Weekly of the 100% tax write-offs against income, but also of the view that Manuel has chosen to be “quite restrictive”. The incentive is for the creation of venture-capital funds that focus their investment on small companies, with a slightly different set of criteria for junior mining companies.

The direct implication is that bottom-end junior mining companies may soon have a new class of investor. Qualifying funds are required to have a spread of investments within 36 months and junior mining companies must be producing revenue within 36 months. It will be up to the specialist finance houses, like New Africa Mining Fund and the Peregrines and the Braits, to set up these types of funds.

The second mandatory portion of black economic empowerment (BEE) in mining is poised to be more difficult than the first, which is currently being severely stress-tested, Ernest & Young director Lance Tomlinson remarks on page 12 of this edition of Mining Weekly. Tomlinson also expects that the second BEE wave may also be done differently, with a possible focus on vendor finance.

With the May 2009 deadline for South African mining companies to have fulfilled the first 15% tranche of the full 26% BEE requirement, the country is entering into the period of obtaining the remaining 11% by 2014. But, while the first 15% BEE wave was done against the backdrop of rising commodity prices and a mining boom, the second 11% would most likely be done against a backdrop of lower commodity prices and far tougher mining-sector conditions.

To watch a video on Tomlinson expounding on his view, go to www.miningweekly.com and click on ‘Multimedia’ and then on ‘Video Clips’.

The stricken Pamodzi Gold mining company was all set to fight last Friday, despite the provisional liquidation order granted against it. Read on page 10 of this edition of Mining Weekly of the determination of Pamodzi Gold CEO Peter Steenkamp to go all the way to the wire to save the company from full liquidation.

April 14 is the return date and, in the interim, directors have requested the JSE to suspend the trading in its shares on the exchange. But gold production is continuing, albeit at a level heavily constrained by a dire lack of cash. Steenkamp says there is no truth in the report that AngloGold Ashanti, which toll-treats the company’s ore, is making things difficult.