To revive South Africa's anemic exploration sector, industry leaders have pinned hope on mirroring tax incentives offered in Canada and Australia in a bid to attract more investment, among broader reforms.
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South African Minister of Natural Resources Gwede Mantashe highlighted the issue of incentives for exploration during a recent mining industry event. Mantashe is shown here speaking at a conference in Perth, Australia, on Sept. 4, 2019. |
Commenting on the industry push, South African Minister of Mineral Resources and Energy Gwede Mantashe said such policies were possible, but did not commit to enacting them.
"We can all go around with bags, developing financial policies, but the question of incentives for exploration is on the table," Mantashe said during a virtual March 2 panel held by Fasken Martineau, a Canadian law firm.
"We want to basically increase exploration expenditure fivefold from its current 1% of global total to 5%," said Roger Baxter, CEO of the Minerals Council South Africa. "And we also want to get the mining sector's total contribution to GDP back to above 10% of GDP. We think that it's very possible."
South African exploration budgets for nonferrous materials, excluding certain industrial minerals such as coal, have dried up in recent years, falling from over $300 million in 2012 to a range of about $50 million to $100 million since 2015, according to S&P Global Market Intelligence data. The mining industry in South Africa has taken note and is in ongoing discussions with the government aimed at boosting exploration and the mining sector as a whole.
Exploration incentives such as those offered in Canada and Australia are key to rejuvenating investment and exploration activity in South Africa, industry leaders in South Africa's exploration sector said during the panel discussion. They cast Canada's flow-through share regime, where investors receive immediate tax deductions related to in-country exploration spending, as a type of incentive South Africa should adopt.
Conor McFadden, a Johannesburg-based tax lawyer with Fasken, said South Africa has a similar type of deduction, but that it only applies when a mineral asset goes to production, whereas the Canadian policy is aimed squarely at delivering tax benefits from the exploration stage.
Limited listings
One issue South Africa's exploration sector may face is a lack of listed exploration companies. Market Intelligence analyst Kevin Murphy, who covers mining and exploration, pointed to the paucity of public companies pursuing exploration in South Africa, relative to peer markets on the Toronto Stock Exchange and Australian Securities Exchange, which dominate capital raising for exploration.
With that in mind, Murphy said it is unlikely a flow-through type incentive would spur a lot of investment. "You have to go to the TSX and the ASX to get the vast majority of the juniors, so it would only impact a small group of companies."
Errol Smart, managing director and CEO of Orion Minerals Ltd. who is involved in policy discussions on exploration in South Africa, said during the March 2 panel that it is critical to see more exploration listings in South Africa. Investment funds in South Africa need more flexibility to invest in the high-risk sector and more private companies need to be enticed, and educated, about listing to draw broader exploration investment, Smart said.
"You can't be a listed mining company, or exploration company and behave like a cowboy," Smart added. "There's governance issues. And I think that is such an important learning curve we've got to bring to our junior industry over here."