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DealMakers - Q2 2021 (August 2021)


What junior miners should know
by Godfrey Malesa

A Summary of the Key Initiatives for the Junior Mining Sector

The South African government has, as part of a broader industry growth strategy, taken initiatives to create a more supportive legal environment to encourage exploration activities to sustain South Africa’s mining industry. These measures include, among others, bringing about policy certainty in relation to the junior mining sector, and committing money to aid exploration.


Godfrey Malesa.jpg
Godfrey Malesa

Internationally, term junior mining generally refers to prospecting companies only involved in the early stages of mining development. This is particularly so in Australia and Canada, where the goal of junior mining companies is to develop a mineral deposit to bankable feasibility level and then sell it off to a major. 

However, there is no generally agreed definition of junior mining. Unlike its Canadian and Australian counterparts, who often remain at the discovery and exploration phases of the mining value chain, South African junior mining companies work towards a more advanced level of the mining value chain i.e. from the prospecting to the feasibility study phases through to the mine development, mine operation and then beneficiation and processing stages.

Therefore, in South Africa, junior mining companies include exploration companies, and those that move beyond the bankable feasibility stage into the construction and mine production phases, as small producers.

The primary legislation governing mining in South Africa (including junior mining) is the Minerals and Petroleum Resources Development Act, 28 of 2002, (MPRDA). The MPRDA does not distinguish between major and junior mining companies and hence subjects them to the same legal requirements.  


Regulation and policy interventions
One of the key regulatory and policy interventions initiated is the introduction of provisions specifically dealing with junior miners in the Broad-Based Socio-Economic Empowerment Charter for the Mining and Minerals Industry developed by the Minister of Mineral Resources and Energy in terms of section 100(2) of the MPRDA and published in Government Gazette No. 41934 on 27 September 2018 (Mining Charter). Under the Mining Charter, junior miners are defined as mining right holders with single or multiple mining rights, having a combined annual turnover of less than R150m. A distinction is made between junior miners who have an annual turnover of less than R10m and those that have an annual turnover of between R10m and R150m.

Junior miners with an annual turnover of less than R10m are exempt from complying with the employment equity requirements when there are fewer than ten employees, and are exempt from complying with the ‘inclusive procurement, enterprise and supplier development’ requirements, while junior miners with an annual turnover of between R10m and R150m must comply with the employment equity requirements at group level, as well as the inclusive procurement requirements.

All junior miners with an annual turnover of less than R150m are required to comply with the Black Economic Empowerment (BEE) ownership requirement. The ownership requirement for all junior miners, is described as ‘ownership undefined’ in the Mining Charter. The Guidelines indicate that ‘undefined ownership’ refers to ‘the attainment of the minimum 30% BEE shareholding distributed to all BEE shareholders without following the percentages prescribed in the Mining Charter’. Seemingly, junior miners are obliged to have a 30% BEE shareholding, but they are not compelled to allocate specific proportions of this to BEE entrepreneurs, host communities or qualifying employees.

Another key regulatory and policy intervention introduced by the government is that holders of prospecting rights will not be subject to the provisions of the Mining Charter. Therefore, prospecting activities, due to their high risk profile are free of BEE obligations contained in the Mining Charter. This important intervention is clearly aimed at encouraging and stimulating investment in the mining sector.

Geoscience Amendment Act
Other key legislation and policy interventions introduced by the South African government include the promulgation of the Geoscience Amendment Act 16 of 2010, which expanded the functions of the Council for Geoscience (CGS) by, among others, mandating the CGS to be the custodian and curator of geotechnical information and to undertake exploration and prospecting research in the mineral and petroleum sectors, enabling the CGS to become the custodian of technical information relating to exploration and mining and to compile a complete geotechnical risk profile of the country. 

Funding for the junior mining sector 
The issue of access to finance for junior mining companies is a problem facing most existing and new businesses in South Africa today. Whether locally or in Africa, access to funding for mining project development remains the single biggest challenge. 

It was announced in 2018 that the Department of Mineral Resources and Energy (DMRE), in partnership with the State-owned Industrial Development Corporation of South Africa (IDC), has launched a junior miners' programme to provide opportunities for new entrants identified throughout the mining value chain, as well as assist with issues of access to funding, compliance and access to markets. The IDC has, in turn, announced that it is establishing a fund to support junior miners with funding of their exploration activities. This represents a new approach, as the IDC previously only assisted junior miners with post-exploration activities.

Tax incentives
In 2009, South Africa introduced a tax incentive under s12J of the Income Tax Act 58 of 1962. Section 12J was aimed at financing early stage businesses, including junior mining companies, through venture capital companies (VCCs). Under s12J of the Income Tax Act, junior mining projects in South Africa were able to benefit from a significant tax incentive, in the form of a tax deduction for the full amount of the investment into an approved VCC. Upon investment in an approved VCC, a taxpayer was entitled to claim an income tax deduction in respect of the expenditure actually incurred to subscribe for VCC shares. The aim of s12J was to encourage investment into qualifying investments, with qualifying investors, in turn, receiving a tax deduction for the investment. The VCC regime was subject to a 12 year sunset clause that ended on 30 June 2021. It is not clear whether the incentive will be extended.

Development of an Exploration Implementation Plan
Exploration is expected to become a key focus for South Africa as it looks to develop exploration strategy according to the DMRE, which aims to create an enabling environment in which to expedite exploration and move from capturing 1% of global exploration spend to between 3% and 5% within the next five years.

As part of the President’s revival strategy for the post COVID-19 economy, a number of work streams have been set up, including one on reviving exploration, which includes the Council for Geoscience, the DMRE and the Minerals Council South Africa. The parties have been tasked with developing an exploration implementation plan.

A new and more efficient mining cadastre system 
According to the DMRE, it is developing a new and more efficient mining cadastre system which logs applications for mineral rights, to replace the existing platform which the mining industry widely views as dysfunctional. The DMRE aims to complete the new system by August 2021. 

Other key initiatives by the industry
Other welcomed key initiatives introduced by the mining industry to aid junior mining companies include the following: 

  • The establishment of the Junior and Emerging Miners’ Desk by the Minerals Council South Africa.  The Junior and Emerging Miners’ Desk provides advice and support, and acts as a resource centre for smaller Minerals Council member companies. In addition, it provides assistance with raising finance for projects, on technical aspects of mining, such as geology and engineering, in skills development and compliance with the MPRDA and Mining Charter.

  • The launch of the Mandela Mining Precinct, a public-private collaboration between the Department of Higher Education, Science and Innovation and the Minerals Council. The facility is working towards the revitalisation of mining research, development and innovation in South Africa, to ensure the sustainability of the industry. The Mandela Mining Precinct is an outcome of the 2015 Presidential Operation Phakisa: Mining programme. 

Malesa is a Partner at Fasken (Johannesburg).

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