The Australian government's announcement over the weekend that it will introduce a new exploration tax credit for juniors has been praised by the industry.
Minerals Council of Australia, or MCA, CEO Brendan Pearson said in a Sept. 4 statement emailed to S&P Global Market Intelligence that the MCA has advocated for a measure to overcome the tax asymmetry whereby junior explorers with no taxable income are not able to access the immediate deduction for exploration.
"Targeted tax incentives help reduce the high cost of exploration and help enhance Australia's attractiveness as an exploration investment destination," he said.
The Association of Mining and Exploration Companies, or AMEC, which has also been pushing for the introduction of a new and improved scheme after the government announced in May that it was scrapping the Exploration Development Incentive, or EDI, labelled the move as "visionary."
"The [Junior Mineral Exploration Tax Credit] is a critical investment in Australia's future, particularly as contemporary research in relation to existing mines indicates that there will be significant reductions in production and government revenue streams as those mines reach the end of their current lives," retiring AMEC CEO Simon Bennison said following Prime Minister Malcolm Turnbull's announcement to the Western Australian Liberal Party State Conference in Perth on Sept. 2.
"They need to be replenished by new discoveries as soon as possible."
AMEC President Will Robinson told S&P Global Market Intelligence in Brisbane last week, just prior to news of the replacement scheme, that the organization was hopeful a better scheme would be put in place.
"I think anyone knows that there's a problem with discovery in this country and they need to do something about it," he said.
Turnbull said in his address to the conference that the new four-year, A$100 million scheme will allow junior exploration companies to generate tax credits and immediately distribute them to investors.
Under the prior EDI scheme, junior explorers had to apply to the scheme and wait until the end of the financial year to find out how much shareholders would get back.
Turnbull said the new scheme would provide greater certainty to junior explorers and shareholders with the removal of the modulation factor, which capped the amount that could be claimed back under the previous scheme.
"When they go out to raise the money from their shareholders they will know, because they will have had that confirmed by the [Australian Taxation Office], they will know that if they raise the money and spend it on the exploration that's defined in the new rules, then they will be able to pass on that tax credit to their investors," he said.
According to Australian corporate law firm Gilbert + Tobin, while the removal of the modulation factor is a welcome change, the A$100 million cap may still create uncertainty in the market.
The law firm said that under the former EDI, if the scheme had been oversubscribed then the value of the tax credit would have been reduced, thereby removing the incentive to invest. Under the new scheme, eligible investors will have certainty that they will receive 100% of their credit until the cap is reached.
However, Gilbert + Tobin said it is unclear what will happen if the A$100 million cap is reached, for example, in the middle of the third year of the program, as no details on this have been released.
The Chamber of Minerals and Energy of Western Australia said the Junior Mineral Exploration Tax Credit will significantly boost investment and job creation in the state.
"The long-term future of the resources sector in Australia requires a healthy pipeline of active exploration of the state, however this is costly and capital intensive," said Acting Deputy CEO Kane Moyle.
"Policies that advance exploration through incentives or credits such as [the] tax credit scheme and the [Exploration Incentive Scheme] are critical in providing an incentive for resources companies to explore greenfields areas and facilitate new mineral discoveries in uncharted regions."
According to Moyle, exploration spend in Western Australia is now starting to pick up after falling to decade-low levels.
The launch of the new exploration tax credit comes just days after the Western Australian government announced that it will continue to co-fund exploration drilling in the state under the Exploration Incentive Scheme, providing funding of about A$5.3 million to 43 recipients — including Antipa Minerals Ltd., Encounter Resources Ltd. and Metals X Ltd.