Resource exploration rebate falls well short say geoscientists

Furthermore, there is a real risk that negative reactions stemming from the Government’s proposed Resource Super Profit Tax will badly affect the level of exploration activity within Australia, and this 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”, according to AIG vice president, Andrew Waltho, with the majority of AIG’s members working in exploration roles.
“As a professional institute we are very concerned about the ramifications of changes to Australian taxation law for exploration activity in Australia” said Waltho. “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”.
He said the proposed RER will enable companies to carry forward a proportion of exploration expenditure to be offset against future income, which will 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 follows 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.”
In relation to the proposed Resource Super Profits Tax, Waltho said it will be Australia’s base metal and gold industries, rather than the major bulk commodity industries, that will be most affected.
This is based on findings of the AIG as follows:
• Base metals, and to a lesser extent gold, are commodities with significantly more volatile pricing than iron ore or coal. Therefore, the return on investment in these industries is much more strongly tied to a “few good years”. WA’s nickel industry is a particularly good example of this dynamic. Historically these mines spend a significant part of their life as either unprofitable or very marginal operations.
• Unlike the bulk commodities (where the location of many of the significant, yet to be developed deposits are known), a significant and sustained investment of risk capital in exploration is required to sustain the base metals and gold sectors with the discovery of new world class deposits.
• As demonstrated in the report recently released by the AIG, the base metal and gold industries in Australia are already showing significant signs of decline in both production rates and truly economic resource inventory, despite recent high metal prices. They are clearly in a fragile state for the long term if resources are not replenished by exploration, illustrating the concept of an “exploration pipeline”.

The Australian Institute of Geoscientists (AIG) is a not for profit professional institute representing geoscientists employed in all sectors of industry, government, research and education throughout Australia. AIG members are individual geoscientists.
The AIG’s website (www.aig.org.au) provides information regarding institute activities, including reports examining market failure affecting the ability of junior explorers to raise capital for exploration and the economic benefits of a flow through shares scheme for Australia.