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Canada’s recent acceleration of tax incentives for minerals exploration and mining development has the Australian industry worried that it may be falling behind. But this is a contest of only two jurisdictions. South Africa, the country that should be competing with Canada and Australia for mining capital, is already so far behind that the issue has hardly registered on local radar.

The Minerals Council South Africa has the answer to South Africa’s non-performance. In April, it advocated the implementation of an exact copy of Canada’s 100% flow-through share scheme, arguably the world’s best mechanism for financing mining exploration. There has so far been no response from government.

Exploration spending in South Africa has fallen from 5% of global spend to well under 1% over the past 20 years. Almost all that spending is on brownfield operations, intended to extend existing mines, rather than a search for new ore bodies. Mining Minister Gwede Mantashe’s 2019 promise to improve spending to 5% has turned out to be nothing but hot air.

The chart below shows how South Africa's share of global mining exploration has declined.

Canada and Australia have long been exemplars of best practice in the fraught fields of minerals prospecting and exploration. These are massively risky undertakings. Fewer than one-in-a-thousand exploration projects ever become actual mines.

The Toronto Stock Exchange (TSX) has 1 600 mining listings, of which between 800 and 900 are explorers, most of them listed on the junior TSX Venture Exchange. The Australian Securities Exchange (ASX), based in Sydney, has between 500 and 600 explorers and development companies. By contrast, the JSE has a listing of precisely six exploration companies.

Canada, which raises 50% of the world’s total mining equity finance, uses a 100% flow-through share scheme, which allows the individuals and companies financing minerals exploration to claim back their entire investment as a tax deduction (the flow-through model allows mining exploration companies to pass their exploration tax deductions on to investors, who can then deduct those costs from their own taxable income, making high-risk exploration investments more attractive).

The original scheme did not extend to such pre-production activities as shaft sinking, mine access, and underground tunnelling, but the September 2026 Productivity Mega Deduction added these to the schedule.

Australia has a different exploration incentive scheme, exchanging future tax losses for investor credits. Although effective enough, this tends to raise less capital than the Canadian model. However, it allows ASX-listed explorers to move from board decision to cash-in-bank significantly faster than TSX-listed companies. It also sacrifices less tax revenue than the Canadian model, which makes it preferrable from a short-term fiscal perspective.

Signals from Australian mining executives suggest they are intensely aware of the hot breath of Canadian competition. Sydney-listed BHP, which has a secondary listing on the JSE, is the world’s largest mining company by market capitalisation. Speaking last week, its chairman, Ross McEwan, explicitly warned that Australia is losing its competitive edge: “Make no mistake, Australia must compete for capital if it wants to win.” He contrasted Australia’s approach to Canada’s practical example of how government policy can boost productivity and attract investment.

South Africa is nowhere in this race. The country did have a broadly comparable scheme, Section 12J of the Income Tax Act, introduced in 2009 and abolished in 2021. This allowed a 100% tax write off for high-risk investments made through registered Venture Capital Companies (VCCs). In practice, almost all investments went into the hospitality sector, student housing, and renewable energy projects. In 2021, only one 12J VCC was active in the mining space.

Section 12J failed the South African mining industry precisely because it was not a flow-through model. It allowed funds to invest in real estate and so it became a safe tax shelter for the wealthy rather than an aggressive mechanism to fund high-risk drilling.

Although the Minerals Council has thrown its weight behind the introduction of a clone of Canada’s flow-through model for South Africa, the government has chosen a different route. The Junior Mining Exploration Fund (JMEF), with its initial state capitalisation of R400 million and a further R600 million injection from Anglo American, is intended to finance black-owned junior mining companies.

This is an ineffective initiative. The sum involved is negligible next to the $16 billion in exploration funding raised on the TSX last year. The black ownership requirements (50%+1) are onerous and contradict Mantashe’s promise (made in June last year) that exploration licences would not be burdened by empowerment criteria. Finally, the Fund has a creeping nationalisation element. If it finances a successful strike, 49% ownership immediately reverts to the state.

The government’s JMEF cannot be described as anything other than a pathetic exercise in small-scale patronage. But while government dithers, almost no one is looking for new mineral deposits in South Africa. Adoption of the flow-through tax incentive model could change that dramatically and would be a notable step towards South Africa returning to international mining pre-eminence.