You are here

South Africa gives tax break to gold miners

Section: Daily Dispatches

By Ed Stoddard
Thursday, May 17, 2012

JOHANNESBURG, South Africa -- As African governments seek to extract more revenue from their mining sectors, the continent's biggest economy has given gold producers a much-needed tax break tha t removes at least one head wind from a struggling industry.

Gold Fields, the world No. 4 bullion producer, on Thursday became the latest South African gold miner to report better-than-expected earnings partly on the back of the new, lower tax regime. It benefited to the tune of close to 1 billion rand ($120.46 million) from the change in the first quarter.

The companies' gain will cause some shareholder pain as the burden has been partly sifted to dividends, but analysts generally agree that the Treasury's revenue stream from the gold sector will be less as a result.

It is impossible to forecast the precise net result as that would hinge on a range of factors from the price of gold to the dividends disturbed.

... Dispatch continues below ...


Sona Discovers Potential High-Grade Gold Mineralization
at Blackdome in British Columbia -- 13.6g over 1.5 Meters

From a Company Press Release
November 22, 2011

VANCOUVER, British Columbia -- With its latest surface diamond drilling program at its 100-percent-owned, formerly producing Blackdome gold mine in southern British Columbia, Sona Resources Corp. has discovered a potentially high-grade gold-mineralized area, with one hole intersecting 13.6 grams of gold in 1.5 meters of core drilling.

"We intersected a promising new mineralized zone, and we feel optimistic about the assay results," says Sona's president and CEO, John P. Thompson. "We have undertaken an aggressive exploration program that has tested a number of target zones. Our discovery of this new gold-bearing structure is significant, and it represents a positive development for the company."

Sona aims to bring its permitted Blackdome mill back into production over the next year and a half, at a rate of 200 tonnes per day, with feed from the formerly producing Blackdome mine and the nearby Elizabeth gold deposit property. A positive preliminary economic assessment by Micon International Ltd., based on a gold price of $950 per ounce over eight years, has estimated a cash cost of $208 per tonne milled, or $686 per gold ounce recovered.

For the company's complete press release, please visit:

Effectively it is a change in the formula which brings the marginal tax rate for gold miners down to 34 percent from 43.

Not everyone in the industry sees it as a significant shift in the South African government's thinking on resource nationalism, which has been a defining feature of the region's political risk profile.

"It is a structural change and I would not read too much into a change of sentiment on that," Gold Fields' chief executive Nick Holland told Reuters.

"The gold industry has already taken royalty taxes, which is about 300 million rand ($36.14 million) a year to us. Now we have a mooted carbon tax coming which is probably another 300 million. We can't really take much more," he said.

Holland also noted that the ruling African National Congress, while it has gutted the radical idea of mine nationalisation, is mooting higher mine taxes that would effectively translate into 50 percent on profits.

Still, while hardly a U-turn, the tax cut does at least indicate that ruling party and government thinking on the subject is not just running one way.

"We're not aware of any mining jurisdiction in the world that's lowering mining tax at this time," JPMorgan Cavane noted in March shortly after the changes were announced in the 2012 South African budget.

Mines minister Susan Shabangu told Reuters earlier this week that any future changes to tax policy would aim to keep the sector, which remains a vital source of employment, competitive.

Looked at against the backdrop of the domestic political debate on mining and global and regional trends, the move does seem significant.

Across Africa and elsewhere, the trend -- spurred by red-hot commodity prices which have recently cooled -- has been to raise mining taxes and royalties or get a bigger slice of the action.

This has ranged from tax hikes in Ghana to Zimbabwe's drive to get foreign mining houses to surrender 51 percent stakes in their local operations to black investors there.

Not all investors will be happy with part of the burden shifted to shareholders in the form of a dividend tax.

And while the formula by which gold miners get taxed has changed, this has not been extended to other sectors, such as platinum and coal.

This may partly stem from the fact that platinum and coal are regarded as growth areas while gold needs all of the help it can get.

But can it arrest a decline in South Africa's gold industry, which has seen it fall from being the Saudi Arabia of the precious metal to the world's fourth biggest producer?

That must surely be the government's aim given the sector's importance on the employment front in a country where the jobless rate is probably over 40 percent.

But the money that flows to the gold miners' bottom line will likely flow out of the country.

The Big 3 gold miners, Gold Fields, AngloGold Ashanti, and Harmony, are all investing heavily in expansion plans elsewhere.

With the world's deepest mines, steeply climbing power costs and wages rising by double digits annually, the sun is setting on the sector here.

And when the additional earnings get ploughed into Papua New Guinea, Mali, and other frontier mining states, the government may not be impressed.

This could spark a U-turn on the tax policy for gold miners

* * *

Join GATA here:

Vancouver World Resource Investment Conference
Sunday-Monday, June 3-4, 2012
Vancouver Convention Centre East
Vancouver, British Columbia, Canada

Standard Chartered's Earth Resources Conference
Wednesday-Thursday, June 20-21, 2012
J.W. Marriott, Hong Kong

Hong Kong Gold Investment Forum
Monday-Wednesday, June 25-27, 2012
Renaissance Harbour View Hotel, Hong Kong

Toronto Resource Investment Conference
Thursday-Friday, September 27-28, 2012
Toronto Sheraton Centre Hotel
Toronto, Ontario, Canada

New Orleans Investment Conference
Wednesday-Saturday, October 24-27, 2012
Hilton New Orleans Riverside Hotel
New Orleans, Louisiana

* * *

Support GATA by purchasing DVDs of our London conference in August 2011 or our Dawson City conference in August 2006:

Or by purchasing a colorful GATA T-shirt:

Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

To contribute to GATA, please visit:


Prophecy Platinum (TSXV: NKL) and Ursa Major Minerals
Sign Combination Agreement

Company Press Release
Friday, March 2, 2012

VANCOUVER, British Columbia, Canada -- Prophecy Platinum Corp. (TSX-V: NKL, OTC-QX: PNIKF, Frankfurt: P94P) and Ursa Major Minerals Inc. have signed a binding letter of agreement for a business combination through a proposed all-share transaction. In doing so Prophecy and Ursa have acted at arm's length and the transaction has been negotiated at arm's length.

Prophecy will issue one common share in exchange for every 25 outstanding common shares of Ursa. Ursa options and warrants will be exchanged for options and warrants of Prophecy on an agreed schedule.

Prophecy's offer represents a value of about $0.15 per each common share of Ursa based on Prophecy's share price of $3.70 as at March 1, representing a premium of 130 percent to Ursa's March 1 closing price of $0.065.

Prophecy is to subscribe for $1 million common shares of Ursa by way of private placement financing at $0.06 per share, subject to regulatory approval. Upon placement completion, John Lee and Greg Hall, current Prophecy directors, will be appointed to Ursa's board.

Prophecy thus will become a mid-tier resource company with a robust and diversified pipeline of platinum nickel projects, including:

-- The fully permitted open-pit Shakespeare PGM-Ni-Cu mine close to Sudbury, Ontario, infrastructure with near-term production capabilities.

-- The flagship Wellgreen (Yukon) PGM-Ni-Cu project with more than 10 million ounces of Pt-Pd-Au inferred resource. Drilling is under way and a preliminary economic assessment study is pending.

-- Manitoba's Lynn Lake Ni-Cu project with more than 262 million pounds Ni and 138 million pounds Cu measured and indicated.

For the complete announcement, please visit Prophecy Platinum's Internet site here: