amortization of the capital invested in a new mine: the concessions made did not benefit the supertax payer.36
But,
if the mining and finance house was to be called upon to act as the
agency for the provision of funds, it is clear that this involved
problems of its own. The house must possess ample resources; it must be
prepared to see these funds invested in particular directions for
relatively long periods of time and yet it cannot afford to miss the
chances of new business and of pursuing a dynamic policy. It was for
such reasons that Ernest Oppenheimer throughout his business life
insisted on the necessity for 'liquidity', in the sense of always
having available a margin of uncommitted resources; this implied, among
other things, a cautious dividend policy and large reserve funds.
Taxation
problems, naturally, received a good deal of attention in his annual
address and statements to shareholders. The State in South Africa,
since the passage of the Gold Law in 1908,37 is the residual
owner of the gold resources of the country, and mining is conducted on
the basis of negotiated leases, the terms of the lease being such that
Government obtains a share of the profit on a sliding scale: as profits
rise, so does the share accruing to Government. But, in addition, the
gold-mining industry has been subjected to taxation in excess of the
normal scale of taxation applying to economic activity generally—
36 Mr. Hagart sums up the position as follows in the article (page 4) cited in the previous note:
'In
the meantime, however, owing to the incidence of supertax, the apparent
intention that a new mine should repay capital expenditure by
dividends in the first few years of its life offers no inducement to
the wealthier investor to subscribe for new shares in new ventures or
to take up rights that may accrue in respect of issues of new shares;
and it is a contributory factor towards recent difficulties in
obtaining new money for developing mines.
'The
disadvantage outlined here does not apply to loans that are raised to
finance an established gold-mining company in the full development of
its property. The potential investor can still be attracted to give his
support, through loan subscriptions, to a developing mine, provided
the loan terms allow for the conversion at favourable rates of loan
stock into shares in the company. The incentive of a potential capital
gain through such conversion may, in the long run, offset this
discouragement arising from the incidence of supertax.
'A
further advantage gained through this new method of financing through
loans is that thereby access has been gained to institutional sources
of money in the United Kingdom and elsewhere. Where in the past big
financial institutions with fiduciary responsibilities have been chary
of investment in gold-mining shares, there is now a growing tendency to
invest in loans that carry the backing of responsible mining finance
houses and groups. In this way the responsibility resting upon mining
groups that sponsor and administer new and developing mining ventures
has become more onerous; and the need for large-scale financial
resources within the groups themselves has become a prerequisite for
their continuing to function as both the architects and builders of a
developing mining industry in South Africa.'
37 Act No. 35 of 1908.
