Political parties need to consider investment incentives
IN THE LOBBY: Western Australia’s mineral and petroleum exploration continued its downward trajectory in the June 2013 quarter, according to the Chamber of Minerals and Energy of Western Australia (CME).
The lobby group outlined the decline it is latest edition of the WA Resources and Economics Report, prepared in conjunction with KPMG.
“While the decline over three quarters in exploration expenditure is likely due to the weak commodity price and high cost environment, every effort should be made to arrest this decline,” CME acting chief executive Nicole Roocke said.
CME is one of many mining groups that has been calling for incentives similar to the Canadian flow-through share scheme, which was part of Prime Minister Kevin Rudd’s original election platform in 2007.
The promise was welcomed at the time after the sector had struggled to receive any joy from previous governments.
CME said it time such a minerals exploration tax credit system was introduced to boost the flagging exploration sector.
“To establish a future pipeline of projects we rely upon increasing the current level of exploration activity here in Western Australia,” Roocke said.
The call for such a scheme has been something of a personal crusade of the Association of Mining and Exploration Companies chief executive Simon Bennison.
AMEC claims research undertaken by the University of Western Australia in 2012 showed that not only were mineral discoveries reducing, they were also getting deeper and harder to find.
Another concerning statistic raised by the study is the loss of equity investment to competitive offshore projects.
It also found that the national mineral inventory is gradually being depleted and the mining industry is becoming unsustainable in the long run.
“The research highlighted that about half of Australia’s non-bulk commodities mines would be exhausted in between seven and 18 years,” Bennison said.
“As it takes, on average, seven years to convert a discovery into an operating mine these trends are alarming.
“There is a desperate need to discover the mines of tomorrow to ensure that future revenue streams from base metals do not dry up.”
The CME report said total mineral and petroleum exploration for the recently-completed quarter declined by 22 per cent to $1.14 billion from the previous quarter.
This followed a four per cent drop in the December quarter, and a drop in total mineral exploration expenditure another 10 per cent in the March quarter to $422 million.
The latest result is the third consecutive quarter mineral exploration has declined.
Compared to the corresponding quarter a year ago, mineral exploration is now 14 per cent lower.
“Notwithstanding the transition underway in many major projects from construction to operational phase the future pipeline of projects relies upon increasing the current level of exploration activity here in Western Australia,” Roocke said.
CME said the issue is one will most likely become one of the key election policies affecting the resources sector leading into the federal election.
AMEC’s proposed solution is a reform initiative it calls the Mineral Exploration Tax Credit (METC) that will allow current eligible losses to be passed back to their Australian share owner in the form of a tax credit through the well-known franking system.
“The METC will stimulate the greenfield exploration sector, which has not seen an increase in actual metres drilled for over a decade, despite one of the strongest periods of growth in the Australian mining industry,” Bennison explained.
“Companies with income from mining activities will be ineligible.
“It will also increase the rate of discovery and lead to the mines of tomorrow and provide future revenue streams for governments.”
Bennison claims the METC system will be a win:win for Australian investors, Australian exploration companies, Australian communities and Australian governments at all levels through additional corporate and personal tax, royalties, state taxes, fees and levies.
He suggested it would also stimulate the Australian economy and ultimately contribute to a reduction of the national debt.
A report on the METC proposal by KPMG, which was commissioned by AMEC, found that a multiplier factor of two (2) in additional exploration activity would conservatively result in:
– Potential to provide a positive annual tax revenue stream to Government of up to $283 million;
– Up to 4,356 additional jobs across the whole mining sector;
– Contributing an additional $2.2 billion in GDP across the mining sector; and
– With a proposed commencement date of January 2015, the government investments would be around $50 million in 2016/17, $101 million in 2017/18 and $133 million in 2018/19.
“The challenge is for the political parties to have the vision now to create investment strategies and catalysts that are 10-15 years from when these revenue streams are fully achievable,” Bennison said.
“Jobs and other social and economic benefits are achievable in the short term.
“It is essential that all political parties remove any perceptions about the current mining industry, and think about the development of mines for the benefit of future generations.
“The METC will provide one policy solution that will help address the several declining trends in mineral exploration already identified by the University of Western Australia, assist in discovering the mines of tomorrow and contribute to future revenue streams.
“The time is to act now by amending tax laws which will free up tax losses already owned by investors, which can then translate into the mines of tomorrow.”