Finance Minister Pravin Gordhan tells Mining Weekly Online that he will welcome proposals on reforming the junior mining incentives that were introduced last year, but which have not been taken up because of being overly restrictive.

Former Finance Minister Trevor Manuel, after a long build up, presided over the National Treasury's gazetting of the tax incentives on July 1 last year.

Their primary aim was to benefit the junior mining companies by reducing investor risk.

Heralded as South Africa's answer to Canada's highly successful flow-through incentive scheme, which has built the Toronto Stock Exchange into the world's largest mining exchanges, the incentives were directed at assisting junior mining companies and small-and-medium sized nonmining businesses to access equity finance by providing a tax incentive for investors through venture capital company (VCC) funds.

But they have failed to elicit response.

"We would welcome written proposals from stakeholders and the mining industry," Gordhan has told Mining Weekly Online in an interview.

Access to equity finance by junior mining companies is one of the main challenges to the growth of the sector.

"We are willing to consider possible reforms as long such reforms are in line with the original intent of the incentive and do not open tax avoidance possibilities," Gordhan adds.

Because of the success of the Canadian flow-through shares model and the investment difficulties experienced by South Africa's mining juniors, Manuel looked into the introduction of an incentive to strengthen the local exploration sector.

The most important of the Canadian concepts used by the National Treasury is that when the investor invests money in the VCC scheme an immediate tax deduction is received.

Several commentators say that, even though the VCC model is based on good intent, it needs significant refinement to attract any interest.

The fact that it has attracted zero interest is testimony to the fact that the scheme needs an overhaul.

Even though it carries a 100% tax write-offs of investments against income, unlike Canada, where the flow-through share system encourages the development of the overall market, the South African effort falls far short of that.

He adds that for the junior miner on the other hand, if the incentive is successful it will lead to flows of equity capital into the junior mining sector.