Charlotte Mathews
12 November 2008
Johannesburg — INTEREST in taking advantage of the recently introduced tax breaks for investments in exploration and smaller enterprises has not been significant, possibly because of the number of conditions attached to the legislation, BDO Spencer Steward director Ursula van Eck said yesterday.
In February, Finance Minister Trevor Manuel announced tax deductions for individuals and corporate investors investing through venture capital funds into junior mining and exploration firms with gross assets of R30m to R50m.
These investments qualify for a 50% upfront tax deduction and annual deductions capped at R1m for individuals and R10m for corporations and venture capital funds.
But the proposals fall well short of the "flow-through" deductions introduced in Canada, which allow 100% tax breaks for individuals investing in exploration companies.
The JSE and the mining sector had been lobbying for flow-through shares, but Van Eck said the government seemed to have considered this system too complex for SA.
Those wanting to qualify for the deductions had to meet some onerous conditions, she said. Corporations making the investment and their related companies may not hold more than 10% of the venture capital company. The venture capital firm making the investment must be registered with the Financial Services Board as a services provider - a stringent process - and it may earn its income only from financial instruments. The investment also has to be spread among several companies.
Van Eck said investor interest in junior miners and explorers had not dried up completely and there were still individuals in London and Canada willing to make investments, but less so in SA and Australia.
Junior miners who were close to completing bankable feasibility studies on projects, held sufficient cash or had supportive shareholders, were in the best position to weather the downturn.
But mining companies seeking bank loans, even for asset financing, were in a more difficult position as banks in SA had tightened up lending criteria, she said. The banks were more reluctant to take risks and were demanding extra guarantees.
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