Mining tax changes leave questions for explorers

As widely anticipated, the Government’s compromise offer does not include the exploration rebate that was a feature of the original Resources Super Profits Tax (RSPT).
The scrapping of the exploration rebate is of particular concern to The AusIMM, which represents 10,000 professionals working in the minerals industry.
AusIMM president Greg Chalmers said the exploration rebate was one positive feature of the original mining tax proposal, but its potential benefits had been lost in the overall super tax proposal.
“The exploration rebate has now been excluded from the compromise deal reached with the three major mining companies,” Chalmers said.
“We realise this is a pragmatic decision by the Government in its bid to preserve the net revenue expected to flow from the new Minerals Resource Rent Tax (MRRT), but it once again breaks a clear 2007 election promise by the Labor Party to encourage increased exploration in Australia.
“The AusIMM and other industry groups have made submissions to the Government since 2007 arguing for the introduction of a flow-through shares scheme to correct a long-standing anomaly in the national tax system.”
Chalmers said the opportunity to replace our depleting mineral inventory through increased exploration activity is the only way to address the Prime Minister’s major concern - that mineral resources can only be extracted once.
“While the great majority of iron ore and coal companies wait to be consulted on the details of the proposed resource rent tax, The AusIMM and others will be asking the government how it plans to restore Australia’s position as a leading explorer and therefore how the revenue benefits from this sector can continue to be enjoyed by government, industry and the community beyond the life of existing mines,” said Chalmers.

Resource exploration rebate fell well short
The AIG (Australian Institute of Geoscientists) said whilst it welcomed the concept of a Resource Exploration Rebate (RER), as announced by the Commonwealth Government in its response to the Henry Review, it fell well short of meeting the sector’s needs.
Furthermore, it saw a risk that negative reactions stemming from the Government’s proposed RSPT would affect the level of exploration activity within Australia, and this would negatively impact the jobs and careers of AIG members.
“More than 85 percent of Australia’s geoscientists, professional geologists and geophysicists work in the exploration, mining and energy resource industries”, said AIG vice president, Andrew Waltho, with the majority of AIG’s members working in exploration roles.
“Exploration activity already suffers from significant volatility, with increasingly exaggerated cycles of boom/bust affecting geoscientists’ careers and their ability to find the next generation of orebodies,” said Waltho.
He said the proposed RER would have enabled companies to carry forward a proportion of exploration expenditure to be offset against future income, which would be of benefit to companies actually developing new mining projects.
“However, it falls well short on what is needed to help reduce volatility in exploration investment, an issue that remains a serious impediment to greenfields resource discovery in Australia.”
AIG’s stance on the rebate followed its recent report, “Market Failure in the Australian Mineral Exploration Industry”, that assessed several mechanisms to promote greenfields exploration investment and address the systemic inability of current market financing to adequately fund the type of exploration necessary to sustain and grow Australia’s resource sector into the future.
“The RER proposal appears to be based on a very shallow understanding of the exploration industry,” Waltho said.
“Companies are simplistically presumed to either make a discovery, that becomes a new mine, in which case the RER provides a benefit, or to fail - but this is not how the exploration sector works.
“Major resource discoveries are characteristically made by companies that are the third, fourth or later holders of exploration tenure over the deposit, but rarely the first.
“Companies which fail to make a discovery, still tangibly contribute to future discoveries reporting and open access to past exploration information that exists in all Australian states. The RER proposal does not acknowledge this important contribution but more appropriate investment incentives do.”