FLOW-through shares were once the hobby-horse of Bridgette Radebe, the founder of SAMDA, a junior mining association. Now joined to a High Court action fighting for stricter empowerment regulations, SAMDA has long-ditched such mechanisms of libertarianism, preferring government edict instead.
How the world goes round: much like ANC policy debate. Spend even a brief interlude in South Africa’s mining sector and you are made veteran of the party’s circus of grand ideas. Among the latest is ANC Economic Transformation Committee head Enoch Godongwana’s notion of encouraging investment in the country’s junior mining and exploration sector by providing fiscal incentives.
Errol Smart, MD of South Africa’s best and most promising junior mining/exploration company – Orion Minerals – is heartened by the suggestion. Contained in committee’s discussion document: “Reconstruction, Growth And Transformation: Building a New, Inclusive Economy”, Smart thinks the ideas it presents is a breakthrough. “The fact that the junior mining industry gets a mention is a step forward,” he says.
His reference is to the document’s statement that: “Listings of mining companies on the JSE should be encouraged and South African retail investors willing to invest in mining exploration should be incentivised as is the case in other mining jurisdictions.”
Said Smart: “While the ANC document is more introspective and looking at South African savings to fund South African revival, we have a firm view that local pension funds and savings will only fill a small part of the hole. We need a competitive, free market attractive policy to attract foreign direct investment alongside South African money.”
The Minerals Council of SA, of which Smart is a board member in the capacity as head of its Junior Leadership Forum, is “actively” working on proposals to “lay at government’s door”, he said.
“There is precious little time to engage in more broad engagement. We have been doing that for years. Now is the time to lead and take action forward toward a common goal.”
The council is hoping to table a flow through share incentive as per the Canadian model. This is the system in which exploration companies renounce tax benefits that would be due from incurring exploration (non-revenue bearing) expenses which are passed to investors in return for shares. It’s entirely specific to Canada’s resource sector.
Smart is also encouraged by the committee’s call for the “immediate” ending of disputes over regulations. The Minerals Council and the Department of Mineral Resources and Energy has long sought an out of court dispute (the one to which SAMDA was recently joined) regarding their interpretation of Mining Charter empowerment credits.
Might one now be reached? “Let’s hope so, it’s overdue. Let’s grandfather history and move on,” said Smart.
There is, though, a huge caveat to be taken with the ANC’s well meaning plans. It’s that they often lack party consensus. Two years ago, asset managers batted back the foolhardiness that was prescribed assets only for the Godongwana’s self-same committee to resuscitate the idea in June under somewhat different terms (and language).
This committee’s latest discussion document also contains some chestnuts of note. It signals the importance of the Council for Geoscience playing a role in new investment as well as the importance of “strategic minerals”, both of which have unfortunate resonance because they remind the mining sector that Government wants to beneficially participate in, if not control, new mining investment.
No matter. Smart is hopeful this latest discussion document can gain momentum. It comes at a time when everyone’s trying to work out how South Africa is going to recover post Covid-19. A detailed presentation produced by lobby group, B4SA, in which the Minerals Council had a hand, sets out broad policy reforms that would have to take place across the entire economy, including mining.
Key among them is restoring trust in the national grid, including the need to clear the ground for third party power generation.
The mining sector is set to lose 30,000 jobs as a result of this year’s Covid-19 lockdowns which will precipitate a 20% to 30% fall in 2020 output, the B4SA presentation states. Most damning of all is that of some $30bn in institutional funds under management in mining, only 1% is in this country.