After reading this article in today's Australian and comments...

After reading this article in today's Australian and comments from FMS chairman Bob Kennedy there seems to be little doubt that Flinders has no intention to develop a mine and is focused mainly on selling the asset outright.

Measures stifle investment, say explorers
BY:SARAH-JANE TASKER AND PAUL GARVEY From: The Australian May 16, 2013 12:00AM

AUSTRALIA'S resources sector has warned that tax measures announced in Wayne Swan's sixth budget, aimed directly at the industry, will lower returns and increase barriers to investment.

Industry leaders have argued that the changes to exploration deductions and thin capitalisation rules come at a challenging time of high costs and lower commodity prices and the measures could force companies to invest elsewhere.

Bob Kennedy, chairman of a list of junior companies, including iron ore hopeful Flinders Mines, said it was another imposition in a market that was "really difficult" to raise money in, adding that it sent a negative signal to the lower end of the market.

"You affect the good people as well as the ones you are trying to catch," he said, referring to the government's claim it was closing a "loophole" with the change to exploration deduction rules.



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"There is always a question of unscrupulous behaviour, but for genuine operators it is now a penalty."

Mr Kennedy said the cashflow from operations would change markedly.

"In a high-risk business, such as mining, it is a significant loss of concession with this change and it will affect the price at which assets are sold because they will be worthless because the cashflow has altered unfavourably," he said.

"As a seller of an asset it will be unfavourable because the buyer would want to pay less because they have to pay money upfront."

The budget saw the removal of an immediate deduction for spending on exploration rights. Companies still will be able to deduct "genuine" exploration expenditure. The rest of the costs -- the mining rights and information derived from exploration activity by the company -- will be depreciated across the lesser of 15 years or the life of the mine. If the exploration is ineffective, the rest of the expense will be written off.

Since 2008 there have been 2301 deals worth $61.7 billion involving Australian companies taking over local resource companies, according to Thomson Reuters data, although not all involve exploration companies.

Important deals have included Whitehaven Coal's takeover of Nathan Tinkler's exploration company Aston Resources, Equinox Minerals' bid for Citadel Resources Group, Santos's takeover of Eastern Star Gas and Archer Capital buying energy developments.

According to Treasury there have been deductions totalling $11bn in recent years by resource companies. It estimates the changes will save $1.1bn in deductions out to 2016-17.

Western Areas finance director David Southam argued that anything that would hinder investment from overseas, and anything that hindered companies spending money on the drillbit -- which then had a flow-on to all the mining services companies -- was not good for the industry.

"Exploration companies are the lifeblood of the mining industry, and if you look at the statistics it's been steadily declining over the last few years," he said. "So anything that hinders (exploration) is not good. It's the nursery of the industry and the nursery is getting hit. I'm sure there'll be a lot of argy-bargy during consultation."

Ernst & Young's Oceania mining and metals leader Scott Grimley said removing immediate deductions for an incoming buyer would lower their after-tax returns.

"The knock-on impact of this will be for purchasers to lower the prices they pay for exploration projects, reducing the return on the exploration investment that explorers receive when selling outright," he said.

"This will result in risk capital for exploration moving to other countries with more favourable regimes for exploration."

Pitcher Partners partner Leon Mok agreed that the tax measures would affect future investment decisions in Australia's resources sector. He said while the intention was to hit the big miners, it would devalue the assets being explored by the smaller miners.

"If you are going to devalue a product, it's not only the buyer that suffers but the seller," he said.

"It's the junior explorer that suffers because the major miner might not value this information as much any more.

"Mining is a marginal game . . . you are basically discounting the product that the junior explorers are looking to sell."