The debate around flow-through shares as a solution to kick-start the junior mining industry in South Africa came in for some debate on the first day of the 2007 Mining Indaba, and this instrument has also been mooted as a potential solution to grow economic activity and jobs in Africa as a whole.
Director for group tax at Standard Bank, Marius van Blerck, said South Africa should also be the engine room to make Africa grow — and that this was a very strong reason for trying new concepts like flow-through shares that could induce this kind of growth.
Flow-through shares entitle their owner to claim deductions or credits that would otherwise only be available to a company. These deductions or credits are “flowed through” to the investors, as if the investor had directly been involved in specific company activities.
“Barring the US and South America we will see flow-through shares popping up all over the show,” explained Van Blerck.
He said that banks were not interested in basic greenfield exploration as it was “very, very risky”.
“But money has to get into exploration,” he pointed out.
“The main way has been for big players with substantial reserves and substantial mineral rights to explore by joining brownfield projects or by taking punt on some greenfield exploration.
“But this is not going to attract mining exploration in future — it’s going to come from you, me, the doctor and dentist — the individual — cushioned somewhat by tax incentives,” he said.
Van Blerck said the South African National Treasury was looking at the flow-through concept and was doing research into it.
“The Canadian government is also continuing to provide assistance. As we speak the Australians [who looked at flow-through shares a while ago and decided against it] are now being pressured to look at it again as they are falling behind,” he pointed out.
Van Blerck said the Russians were also very interested as they were finding that the financing of small miners was a major problem they had to address.
“The Asians have other issues and haven’t turned to this yet — but in the next few years I think they will look at it,” he added.
“In South America, because of the base metals boom, money has been pouring in — that will change in time — but this [flow-through shares] is not something for the near future,” he stated.
“In the US no major incentives are under way,” he added.
Van Blerck opined that if the flow-through share concept was introduced in SA it would be on Canadian lines, which restricted it to exploration within SA, but added that this should only be the “immediate aim for the present”.
“If it works then a strong case can be made for prospecting and exploration to take place in the greater Southern African area,” he stated.
“SA’s real strength has been the expertise built up and we can expand with more players — that power could be more strongly unleashed in the rest of Africa to help those countries,” said Van Blerck.
“In raising funds in those countries the same problems are being experienced,” he stressed.
“Flow-through shares are an extremely successful way to stabilise and grow economies of the sub-continent.
“I believe this system can operate in this country fairly easily without the complexities of Canada on a two-or three tier basis,” he explained.
“There needs to be a basic set of regulations so companies can go to market and raise funds and do the work. In the next tier there would be more requirements and possibly a choice between private placement or listing. At the top level — say R50-million or perhaps more — then there should be compulsory listing and a greater degree of requirements to fulfill to do this. Other than that, there shouldn’t be significant restrictions,” he said.
“The system can operate very effectively with very simple rules,” he stated.
“There has to be co-operation between the National Treasury, Sars [South African Revenue Service] and Department of Minerals and Energy to monitor underlying expenditure to ensure its productive and there is no fraud.
“For investors who are risk-takers it makes sense and there is great potential for success,” concluded Van Blerck. – I-Net Bridge