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Mining remains core to defining South Africa’s economy – Manuel

Former Finance Minister Trevor Manuel

Photo by Duane Daws

JSS Empowerment Mining Fund executive director Gaurav Nair

Photo by Duane Daws

2nd February 2017

By: Martin Creamer

Creamer Media Editor

     

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JOHANNESBURG (miningweekly.com) – For the last 150 years, mining has been the driving force of South African industry and economic development.

Even though dislike of mining is expressed in various ways, that does not take away from the manner in which mining has shaped South Africa and influenced the interactions of its people.

Mining has also compelled South Africans to innovate to create an ongoing future for the industry.

But it is not the kindest of industries and it is not like being at Silicon Valley where a couple of people with huge minds innovate and the job is done.

The mining space is a very tough and cruel place and part of what the South African economy lives through because of its mining background are the huge vagaries of external determinants.

“But not withstanding that, mining remains core to defining our economy,” former Finance Minister Trevor Manuel outlined at the launch the JSS Empowerment Mining Fund, which was hosted by ENSafrica, whose COO Otsile Matlou emphasised the significant task ahead for South Africa to continue to use mining as a catalyst for developmental growth.

JSS Empowerment Mining Fund, a joint venture between boutique corporate finance firm Jaltech and construction, mining and processing group Stefanutti Stocks, is described by its executive director Gaurav Nair as South Africa’s lowest-risk junior mining investment vehicle.

It is designed for emerging mining companies to gain entry into what is still a massive industry, which provides for 25% of South Africa’s merchandise exports, a figure that rises to 40% if beneficiated minerals are included, Manuel reminded the launch gathering, which included Creamer Media’s Mining Weekly Online.

“That’s a very significant number and not one that you can walk away from,” said the creator of Section 12 J of the Income Tax Act, under which Jaltech and Stefanutti Stocks are able to offer an investment opportunity through extensive hands-on risk mitigation and tax benefits, as well as funding and technical know-how.

Many calls have been made in recent years for South Africa to seize the current timely opportunity to further amend its mining taxation beyond the Section 12 J, in a manner that encourages foreign investment, stimulates prospecting, gets mining companies to start dealing with marginal mines and gives enough back to the fiscus for the benefit of this country's people.

KPMG corporate tax head Muhammad Saloojee has implored South Africa repeatedly to emulate Canada’s flow-through scheme, which de-risks exploration, the lifeblood of the resources business that is stuttering to a virtual halt in South Africa but is boosted by the governments of most other mining jurisdictions.

The high risk of mineral exploration is not taken into account by South Africa’s tax authorities, which will ultimately lead to the demise of South African mining as a whole if uncorrected.

Nedbank Capital mining and metals investment banker Paul Miller has repeatedly highlighted the desperate underfunding of geoscientists, which is depriving South Africa of the geological potential essential for minerals exploration.

Section 12 J has not incentivised a single investment in exploration, a high risk pursuit that Canada’s flow-through scheme has managed to mitigate for the benefit of the Canadian economy as a whole.

“We’ve envied the Toronto Stock Exchange and what happens with junior miners in Canada but we’ve never quite gotten close.

“Part of the reason I am here this morning is to say that I think this mining fund moves us along the path towards a different kind of future, different participation and a lot more sustainable empowerment. It will take a while to aggregate, but I do believe this will provide a big difference to all of us,” said Manuel, who noted that mining continues to account for some 15% of South Africa’s foreign direct investment and 10% of the value of the Johannesburg Stock Exchange, generating 460 000 direct jobs and 1.4-million jobs when the multipliers are included.

“Important as mining is, it’s not for the faint hearted,” he said, recalling that investment allocated to greenfield mining projects plummeted from $83-billion in 2009 to $20-billion in 2015.

“But the industry headwinds are easing and there’s a lot more confidence. You talk to miners about prices and futures and part of the difficulty of what the world lived through is what Chinese appetites did to prices in the early 2000s, when the Chinese were rolling out and commissioning one coal-fired thermal power station a week in China.

“Copper prices were stratospheric and suddenly it stopped. Now they’ve got to decommission all of those power stations so that the Chinese people can breathe. That’s what happens when you have appetites that are actually uncontrolled.

“These are enormously difficult issues and they impact on investment patterns and outputs in the mining sector. We need to understand all these things because they are outside of the control of our mining companies.

“Our responsibilities include being smart about how we create a sustainable environment in a sector that will continue to attract investment and that will continue to encourage meaningful participation and transformation,” Manuel said, adding that the aspect of JSS Empowerment Mining Fund that excites him most is the new thought leadership that it embodies.

“You take capital, financial intelligence, mining and construction expertise. You combine these and you create the sharp empowerment instruments that are needed and that’s what produces a different set of opportunities for small miners in South Africa.

“It’ll take a long while to aggregate itself up to the big empowerment numbers but what it will do is probably create a lot more sustainability and interactions that will provide a different kind of mine in the future,” added Manuel, who served South Africa’s Finance Minister from 1996 to 2009, during the presidencies of Nelson Mandela, Thabo Mbeki and Kgalema Motlanthe, and subsequently as Minister in the Presidency for the National Planning Commission from 2009 to 2014 under President Jacob Zuma.

Edited by Creamer Media Reporter

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