Exploration activity in South Africa was the lifeblood of the mining industry but it was not growing as fast as it should be compared to other countries, Chamber of Mines of South Africa chief economist Roger Baxter said on Tuesday.
Speaking at the 2007 Mining Indaba, Baxter said: “Exploration has to be booming to boost the industry, but in the last few years we have missed the boat.”
Baxter pointed out that exploration had grown 307% globally to $7,1 billion since 2002, but South Africa was not growing as fast relative to other countries.
“When looking at the actual change in exploration expenditure — our share of global exploration expenditure has been falling. Encouragingly, in 2006 we have gone sideways — which is a bit of good news,” he added.
Baxter pointed out that over half of global exploration expenditure was now done by junior mining companies and for this they relied mainly on venture-capital funding.
However, he added that this type of funding was “very difficult” to obtain, due to issues such as poorer recovery rates from liquidated companies in South Africa compared with countries such as Canada — around 33 cents in the rand was recovered compared with around 90 cents in the dollar in Canada.
“Banks don’t traditionally lend for this [junior mining exploration] — not even globally, so it is unlikely it will happen in South Africa,” he added.
Baxter said venture-capital funding should be promoted as a solution and there was no doubt flow-through shares would play a big role in changing the ability of junior resource companies in South Africa to get funding.
Baxter said that there was a need to adapt company and liquidation laws, promote a culture of venture capital in South Africa, continue to streamline processes in terms of the application of the Mineral and Petroleum Resources Development Act and to develop a good-quality, standardised database.
The flow-through share concept has developed successfully in Canada where investors in these shares of a company, or portfolio of companies, can receive tax credits which reduce their income tax payable. – I-Net Bridge