Effective investment in a Section 12J company requires careful consideration of many more factors than just their beneficial tax structure, particularly when it comes to choosing which Section12J companies are best suited to each individual client.
CCP 12J Fund Limited (“CCP 12J”) is a public company that is a registered Venture Capital Company (VCC-0097). It is also registered with the Financial Services Board (FSP No: 48868). CCP 12J is managed by CCP Managers 12J (Pty) Ltd. The CCP 12J Fund aims to invest in lower risk, secondary and ancillary mining projects, alongside existing operating mining companies and on existing mine sites.
Note: this investment has liquidity constraints (unlisted shares, 5-year recoupment period) and fees that are typical of alternative asset investments – both these factors have been taken into account when designing the CCP 12J proposition.
DRA Group (founded in 1984) is a global engineering, project management and processing plant operations business with capabilities right across the mining value chain, employing in excess of 3,000 people (>1,000 engineers) and revenues in excess of R6.0 billion per annum
Minopex is DRA’s mineral processing plant operations, maintenance and optimization business.
Concentrate Capital Partners is an asset management vehicle through which DRA makes strategic non-controlling investments, as a technical partner, into mining projects
Stockdale Street (“Stockdale”) is the company that advises the Mary Oppenheimer family interests’ South African private equity activities. In 2016, a partnership advised by Stockdale acquired a significant shareholding in DRA
CCP 12J has gone to great lengths to assemble a group of individuals with a track record of successfully allocating capital to mining projects in South African and beyond. The resultant Investment Committee will be responsible for considering and approving investments made by CCP 12J.
Directors & Investment Committee Members
WHAT IS SECTION 12J
One of the main challenges to the economic growth of small and medium-sized businesses and junior mining exploration is access to equity finance.
To assist these sectors in terms of equity finance, government has implemented a tax incentive for investors in such enterprises through the Venture Capital Company regime enabled by Section 12J of the Income Tax Act.
A Venture Capital Company is intended to be a vehicle to attract retail investors. It has the benefit of bringing together small investors as well as concentrating investment expertise in favour of the small business sector.
Why Choose CCP 12J for your Section 12J Fund
CCP 12J is able to invest in companies with total assets up to R500 million. Other 12J funds that invest into non-mining investments can only invest into companies with total assets up to R50 million. CCP 12J can therefore consider investments into larger and/or more established companies. This significantly expands its investment universe and also allows the benefits of scale to be realised for its investors.
How It Works
- Investors in CCP 12J receive a share certificate and a tax certificate.
- Investors can then deduct the full amount invested from their taxable income using the tax certificate received from CCP 12J.
- If the investment is held for a 5 year period or more, the tax benefit will become permanent.
- Thereafter standard tax rules apply.
- Any capital gains, and the original capital, returned to investors after five years will be subject to capital gains tax.
- However, the base cost for capital gains tax purposes is zero if the investor has claimed their allowable 12J deduction.
- Dividends received from CCP 12J are subject to dividends withholdings tax, unless the investor is exempt.
- CCP 12J will invest in qualifying companies and will be responsible to ensure that all SARS requirements are met on an ongoing basis.
- The investee must be a company;
- It must be a resident;
- It must not be a controlled group company in relation to a group of companies;
- Its tax affairs must be in order (a tax clearance certificate must be requested from SARS to support this requirement);
- It must be an unlisted company (section 41 of the Income Tax Act) or a junior mining company; a junior mining company may be listed on the Alternative Exchange Division (AltX) of the JSE Limited;
- During any year of assessment, the sum of the “Investment Income” derived by the investee must not exceed 20% of its gross income for that year of assessment;
- It must not carry on any of the following impermissible trades:
- Any trade carried on in respect of immoveable property, except trade as a hotel keeper (includes bed and breakfast establishments);
- Financial service activities such as banking, insurance, money-lending and hire purchase financing; provision of financial or advisory services, including legal, tax advisory, stock broking, management consulting, auditing, or accounting;
- Operating casino’s or other gambling related activities including any other games of chance; manufacturing, buying or selling liquor, tobacco products or arms or ammunition; or
- Any trade carried on mainly outside South Africa.
- There are no special tax rules for investee companies. The standard tax rules will apply.
- A minimum of 80% of the expenditure incurred by CCP 12J to acquire assets must be for qualifying shares, and each investee company must, immediately after the issuing of the qualifying shares, hold assets with a book value not exceeding: R500 million in any junior mining company; or R50 million in any other qualifying company.
- The expenditure incurred by CCP 12J to acquire qualifying shares in any one qualifying company must not exceed 20% of any amounts received in respect of the issue of Ordinary Shares of CCP 12J.
- A maximum of 70% of the equity in a qualifying company can be held by CCP 12J.
In addition, CCP 12J must maintain a record of all its investors and investees which must be submitted to SARS in February and August of each year.
Please take note the above is a summary based on current legislation. It is a general guide which is not intended to constitute a complete analysis of the taxation consequences of the Venture Capital Company regime described in Section 12J of the Income Tax Act. It is not intended to be, nor does it constitute, legal or taxation advice. The CCP 12J, its staff and advisors accept no liability or responsibility for the tax consequences of the proposed transaction in the hands of investors who are advised to consult their own tax advisors.
CCP 12J will pursue mining related equity investment opportunities which meet the following criteria:
The funds raised by CCP 12J will be invested in a portfolio of mining related equity investments carefully selected by the Manager and meeting the stringent criteria of the Investment Committee. These investments will aim to target nominal pre-tax returns in the mid to high teens. It is therefore anticipated that once added to the enhancement afforded to investments into a Venture Capital Company, CCP 12J will aim to deliver an Internal Rate of Return (IRR) of approximately 20%. CCP 12J deems this return range to be very attractive, given the risk profile of the investments being pursued.
Video in which Jean Nel, a director of CCP 12J Fund, explains the key aspects of the fund.
12J Marketplace Presentation
Paul Miller, MD of the CCP 12J Fund, explains and discusses the fund at the 12J Marketplace Johannesburg event.
INVEST WITH US
|Eligibility||Any South African tax payer can benefit from the tax deduction. This includes individuals, companies and trusts|
|Sector||Mining (focus on reduced capital / short-time to production / expansion of existing operations / advanced projects with short period to production – tailings/dump retreatment projects are likely to be the primary focus)|
|Return objectives||The targeted investment returns are expected to yield an ~20% IRR in the hands of investors (after all fees)|
|Term / Liquidity profile||Private equity profile (5-8 year horizon) – investors are required to hold their investment for at least 5 years to prevent any tax recoupments|
|Tax benefits||Investment is deductible from taxable income in the year in which the investment is made|
|Minimum subscription||R500,000 (smaller amounts at the sole discretion of the Board of CCP 12J)|
|Maximum subscription||Any amount (multiples of R10,000 above minimum subscription amount)|
|Fees||Management fee: 2.0% per annum on assets under management (paid quarterly in advance)
Performance fee: 20% after STEFI is earned on risk capital (net investment amount) from distributions declared by CCP 12J
Please take note the above is a summary of terms conveyed in the current prospectus issued by CCP 12J. It is not intended to constitute a complete analysis of any investment into CCP 12J or to replace an investor properly considering the contents of the prospectus. It therefore is not intended to be, nor does it constitute, legal or taxation advice. The CCP 12J, its staff and advisors accept no liability or responsibility for the tax consequences of the proposed transaction in the hands of investors who are advised to consult their own tax advisors.
To invest, or for further information, send us a message and we will contact you.
IN THE NEWS
CCP 12J MD Paul Miller talks to Mining Weekly Online’s Martin Creamer on new tax incentives to boost mining investment.
Video and Video Editing: Nicholas Boyd. Photographs: Dylan Slater. Click here to watch the video on Mining Weekly.
In the past there were a variety of options for South African taxpayers to legally reduce their annual tax liabilities. Changing economic times and an increasingly challenged fiscus have meant that, over the years, the number and variety of these options have steadily been reduced.
In an economic environment of tight capital allocation and bank pull back from mining finance, the new tax-incentivised CCP 12J Mining Fund is going all out to raise R750-million for co-investment in ancillary project opportunities on existing mine sites.