It is wonderful news that the Department of Mineral Resources is at last acknowledging the importance of junior mining promotion by announcing its intention to create a junior miners fund for emerging black startups of greenfield exploration projects.
But what has still to be acknowledged is that, for meaningful momentum to build up in this vital space, incentivisation needs to be able to match what is being provided in other mining jurisdictions.
For some reason, an intransigent National Treasury seems to think it should reinvent the wheel when it comes to providing effective tax credits that have been tried and tested and proved successful in other countries.
As JSE business development manager Patrycja Kula-Verster commented at last week’s Junior Indaba, in reference to Canada’s highly successful, but locally spurned, flow-through scheme, “it’s so disheartening to hear that we are paying for our junior mining companies to go and raise capital overseas”.
Is the 12J incentive scheme offered by the Treasury as a substitute to the flow-through model what it is cracked up to be? If the Treasury had only heeded the call of those who have South Africa’s true interests at heart, this would no longer be an issue.
But the Treasury has lost credibility on this issue, to the detriment, it seems, of South Africa. In the early 2000s, it spoke in favour of the flow-through model and promised to implement it. Then, all of a sudden, there was a change of heart and the Treasury gazetted what it claimed was far superior to the flow-through model.
But the only thing that the Treasury exposed with its stupidly concocted gazetting was that it had about as much of a grasp of how to attract risk capital for greenfield exploration as errant former Mineral Resources Minister Mosebenzi Zwane had when he drew up and gazetted the ill-feted Mining Charter III.
But the Treasury gets away with its foolishness and time wasting. Remember how it pussyfooted around incentives for hydrocarbon exploration off South Africa’s West Coast? By the time it came up with its scheme, all the drilling rigs had gone off to the Gulf of Mexico. Who loses out each time? Yes, South Africa and its people.
Will 12J do the job of attracting risk capital to South Africa for greenfield exploration? That is the whole purpose of it, but Junior Indaba chairperson Bernard Swanepoel, who has certainly been around the mining block many times over, drew attention to the unintended consequence of 12J incentivising investment in shopping centres, of all things. If there is one investment South Africa should not incentive, it is shopping centre development. Heaven knows that the country already has an overabundance of what are wealth- consuming entities.
To keep cyclical industries going through tough times, Canada introduced the flow-through model into its Income Tax Act 60 years ago, which has resulted in the country being a top attractor of risk capital. The country is today home to more mining companies than any other country, simply by introducing what is essentially a tax credit, but one that can, in turn, be passed on to underlying investors. Why reinvent a wheel that has proved so successful over many years?