From AFR 16/05/13:The bias that exists in Australia in favour of...

From AFR 16/05/13:


The bias that exists in Australia in favour of big mining companies and against smaller exploration companies was confirmed in the federal budget on Tuesday.

Resources and Energy Minister Gary Gray will be under pressure from the mining lobby to make sure the changes to the tax concessions for exploration do not have unintended consequences.

Treasury acted to close a loophole that allowed some big mining and oil and gas companies to rort the existing rules which were designed to encourage cash poor companies to explore for resources.

Gray needs to be careful that this move to “protect the corporate tax base from erosion and loopholes” does not make Australia even less competitive in the competition for global capital.

The federal government’s policy development in relation to exploration has been a mess for years. It promised in 2007 to copy the Canadian model of flow through share schemes but that idea was abandoned in 2010.

Canada, which has a much better track record of supporting its mining companies, has a system of exploration tax credits. Exploration costs flow through to shareholders immediately as a 100?per cent tax deduction.

This system has worked well to make the Canadian market a world leader in equity financing for exploration activity. But it is clear that when the market for small mining exploration is dead, the flow through share scheme is also dead.

One investment banker said state and federal governments in Australia had done everything they could to hold back mining exploration with the exception of the former NSW Labor governments that included mining minister Ian Macdonald.

Treasury says that its changes to the exploration deduction regime will ensure that the majority of expenditure on depreciating assets first used for exploration will continue to benefit from an immediate deduction and this will maintain support for genuine exploration activity.

The small mining exploration companies are currently like yachts in a dead calm in Bass Strait.

However, this presents a golden opportunity for private equity and other proven risk takers to come in and buy valuable prospective resources cheaply.