The introduction of flow-through shares in Canada over 50 years ago greatly stimulated mining exploration activ- ity, and it is partly due to this incentive system that Canada has led the world in minerals exploration expenditure for the last five years.
In order for South African mining juniors to compete with foreign mining companies, particularly when it comes to raising capital, it is felt that incentives for listing on the stock exchange are needed, and the role that government plays is key.
The Canadian federal, provincial and territorial governments provide generous tax deductions and credits for minerals exploration, and are willing to give up limited tax revenues in exchange for increased exploration to sustain the mining industry. In turn, many Canadian investors are looking for an interesting, and often speculative, investment in exchange for sheltering part of their personal income from taxationquartz ore impact crusher.
“Canada has a large number of junior exploration companies. “In June 2006, 1 224 mining companies were listed on the Canadian exchanges, most of which were junior mining companies. “These companies usually have no income from operational mining, and depend on raising money on the stock exchanges. “Since they have no production revenues against which to claim the tax deductions, the flow- through mechanism allows them to exchange these deductions for immediate funding,” explains Natu- ral Resources Canada minerals and metals tax and exploration division director Robert Clark</strongsale stone crusher machine>.
Clark goes on to point out that Canada has a sophisticated financial and legal community with significant expertise that allows them to understand the needs of the junior mining industry. Toronto and Vancouver are home to securities commissions and stock exchanges that have kept the regulatory burden and listing requirements manageable.
The “bottom line”, as Clark puts it, when it comes to flow-through shares, is that, firstly, junior mining and exploration companies benefit because they can obtain funds for exploration, partly in exchange for tax deductions that they would not be able to use anturnkey dolomite crushing plantyway.
Secondly, as long as exploration is restricted to the specific country, new mines provide economic benefits to the country, and its rural communities, in particular.
Thirdly, investors in flow-through shares benefit because they reduce their income tax and have shares of viable value in a mining company or a mutual fund and, lastly, the direct costs to the government are said to be modest.
Thus, the cost-effectiveness of flow-through shares can be felt by the government, the investor, the mining company, and, of course, local communities, which benefit in the long run from jobs and gmineral crusher equipment manufacturer philippinesrowth from new discoveries.
“A Finance Canada study found that flow-through shares provided a significant portion of all exploration funding during times when additional incentives were offered, but inflated the cost of doing exploration work. “The study concluded that during the period from 1987 to 1991, for each dollar of lost tax revenue, $2,60 of new incremental-exploration work was undertaken. The multiplier appears to be of a similar magnitude for the current period,” states Clark.
A significant amount of new minerals deposits was discovered by using some mix of flow-through funding and other funding, and the creation of an additional means of obtaining risk financing for exploration is viewed as key to these successes. The flow-through share system also benefited the economy of Canada overall, particularly in Ontario, British Colombia, Qu�bec, Nunavut, and the North West Territories.
Elsewhere in the world, Chile has obtained information on the flow-through share mechanism, and while Australia had a form of flow-through shares in the 1960s, industry and State governments have advocated its reintroduction since 2001.
South Africa has been studying the mechanism for several years, and a joint working group headed by the National Treasury is evaluating the need for, and the potential scope of, these types of shares in South Africa.
While the Canadian model serves as a useful reference, the system would have to be adapted to suit South Africa’s, and potentially Africa’s, needs.
JSE marketing and business development senior GM Noah Greenhill confirms that the JSE is looking at trying to remove the administration hurdles that companies have to go through to list on the JSE.
“Other resources markets benefit from incentives; if we are to catch up in South Africa, we need to box a whole lot smarter,” he adds.