Exploration Development Incentive Scheme passes Senate
IN THE LOBBY: This week the Australian Government has secured passage through the Senate of the Exploration Development Incentive (EDI) scheme, which supports junior and mid-sized mining companies by encouraging greenfields mineral exploration.
The EDI is available to Australian-resident investors in junior mineral exploration companies.
The scheme entitles these investors to the EDI tax offset or additional franking credits where the company in which they are a shareholder issues them an exploration credit, up to a capped amount based on the company’s exploration expenditure.
Basically, the scheme allows eligible exploration companies to convert a portion of their tax loss to exploration credits, which can be passed on to shareholders so they also receive an equivalent tax benefit.
The scheme has been a long-time favourite hobby-horse for the sectors lobbying bodies, so it was no surprise news of the Bill’s passage was received favourably.
Based on a similar scheme, which has been used in Canada – a major competitor for resource investment of the Australian sector, the scheme had been part of the package of policy promises outlined by the K Rudd-led Labor Party as it marched to electoral victory in 2007.
However, it quickly faded from view and was not seen again until the Liberals jumped on it in the lead up to the last election.
Fortunately for the industry it has turned out to be one promise the Abbott Government has been able to keep.
“CME has long sought a form of incentive that recognises the long lead times between investment, exploration and production over a number of years and the risks faced by investors in these early start-up stages,” Chamber of Minerals and Energy of Western Australia (CME) chief executive Reg Howard-Smith said.
“Notwithstanding the transition underway in many major projects from construction to the operational phase, particularly in bulk commodities, the future pipeline of projects relies upon increasing the current level of exploration activity.”
“Exploration is the lifeblood of future industry.
“It is pleasing that the Government have honoured an election commitment which could boost exploration activity, future investment and jobs growth.”
CME, along with the Association of Mining and Exploration Companies (AMEC), has worked closely with the Department of Industry over the past 18 months throughout the development process and ongoing consultation in the establishment of the EDI legislation.
AMEC CEO Simon Bennison also welcomed the passage of the bill saying the Government has recognised the need to encourage investment in mineral exploration in Australia in order to discover the mines of tomorrow and sustain the economic benefits for all Australians.
“AMEC has been the leading advocate for an exploration tax credit system,” Bennison proclaimed.
“Three reports issued in the past week highlight the need for the urgent implementation of the EDI and de-risk the market to encourage retail investors.
“Restoring investor confidence and providing certainty and stability for business investment decisions are crucial to improving Australia’s international competitiveness.”
Bennison directed attention to the Canada-based Fraser Institute’s Annual Survey of Mining Companies for 2014, in which all Australian jurisdictions except for South Australia decreased on the Investment Attractiveness Index.
“Capital is extremely mobile so further damage to Australia’s reputation will see reduced investment in Australian projects and companies moving to more attractive jurisdictions,” Bennison continued.
“In 2014, 47 percent of capital raised on the Australian Securities Exchange for mineral exploration was invested globally.”
The two other reports in Bennison’s arsenal were SNL Metals & Mining’s World Exploration Trends 2015, which reported a 26 percent decrease in 2014 worldwide nonferrous metals exploration budgets.
SNL put this down to investor wariness of the junior sector and producers scaling back their exploration spending.
The Mineral and Petroleum Exploration, Australia December 2014 quarter results from the Australian Bureau of Statistics identified a small increase in mineral exploration expenditure and metres drilled on new deposits, however it also indicated there is still a long way to go to restore equity between investments on new compared with existing deposits.
“Given the long lead time from discovery to a producing mine, investment in greenfields exploration is essential,” Bennison added.
“The EDI must now be implemented urgently to stimulate the sector and provide clarity for investors.
“AMEC looks forward to continuing to work with the Australian Tax Office, Treasury and the Department of Industry and Science through the implementation of the EDI and will be holding briefing sessions for the industry.”