A Rapid Method of Estimating the Distributable Profit of Certain South Africa Gold Mines Receiving State Assistance

Cilliers, J. J. leR.
Organization: The Southern African Institute of Mining and Metallurgy
Pages: 8
Publication Date: Unavailable
ABSTRACT The recently introduced concept of negative taxation complicates estimation of the distributable profit of certain South African gold mines, and an assisted mine could operate at a working loss and yet produce an overall profit for distribution amongst its shareholders. A simple diagram is presented from which the approximate working profit or loss, taxation payable or tax credit received, and the distributable profit of an assisted mine can be estimated directly for any combination of the four main variable operational factors: tonnage milled, recovery grade, unit cost and capital expenditure. INTRODUCTION The effects on the working profits of South African Gold mines caused by changes in unit working costs, recovery grade, tonnage milled and capital expenditure are readily estimated. For normal tax- and lease-paying mines the distributable profit is related to the working profit and the latter is a commonly accepted comparative measure of the profitability of an operation. However, the recently introduced concept of State assistance in the form of negative taxation1, i.e. a tax credit, for mines with a life of less than eight years complicates such estimates. A requirement of State assistance is that an assisted mine must lower its normal pay limit by 16 to 20 per cent, and it will be possible for a mine to operate at a working loss and yet produce an overall profit for distribution amongst its shareholders. In the case of an assisted mine it is therefore necessary for management to judge the effects of changes in unit costs, grade, etc., in terms of distributable profit instead of working profit. This will require repeated calculation of tax to be paid or tax credits that will be received under the numerous possible combinations of the four main variable factors. However, with the aid of the diagram illustrated in Fig. 1, it is possible to assess at a glance the practical effect of these variables on the distributable profit of an operation not subject to tax on the normal formula, or small mine formula, with sufficient accuracy to decide whether a detailed analysis is required. USE OF THE DIAGRAM From the central point 'X' in Fig. 1, a range of tonnages milled per annum has been plotted along the north-bearing axis, a series of costs per ton milled in the northwestern quadrant, recovery grades in the northeastern quadrant, and capital expenditures in the southwestern quadrant. Starting from the tonnage milled per annum, a line is drawn east and west across the two northern quadrants up to the points where it reaches the desired cost- and grade-lines. From these points two north-south lines are drawn into the southern quadrants. A further line is drawn to the east from the point where the western north-south line crosses the desired capital expenditure. Distributable profit is read off in the southeastern quadrant where this line intersects the eastern north-south line. Every possible combination of
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