Australian explorers questioned the federal government's recent decision to scrap the Exploration Development Incentive, or EDI, saying it demonstrates a lack of understanding of the exploration sector.
The government earlier in May announced its decision to drop the three-year scheme because of low participation by junior exploration companies. A private review of the EDI was conducted in late 2016, but there was no consultation with industry or the public before the government made its decision.
Simon Bennison, CEO of the Association of Mining and Exploration Companies, said the fact that the report was never made publicly available raises a serious question about the motives behind scrapping the initiative.
"Why wouldn't they give it to industry to have a look at, which immediately makes everyone suspicious about the contents of the report," he told S&P Global Market Intelligence.
"I think the government doesn't understand the exploration sector and that's part of the problem. Otherwise, they would have given this a lot more lead time to actually let the industry create more IPOs, attract more capital and give this a decent run."
According to Bennison, the EDI needed at least nine to 10 years to "demonstrate its worth."
"To have the expectation that after 24 months, if that, you've got sufficient evidence to base a decision as to whether to extend it or not, it's just ludicrous," he said.
The past two years have been the worst on record for greenfields exploration in Australia, with at least 30% of all equity raised in the country still being funneled into overseas exploration, according to Bennison.
"We're getting further and further behind in international discovery," he said. "Even when we do get the equity raising in Australia, we are still struggling to get the holes in the ground within this country."
According to SNL Metals & Mining data, in 2016, Australian companies budgeted US$612.2 million for Australia, representing 57.1% of their total allocations. In 2015 they budgeted US$786.7 million, or 55.5%.
The key issue for the industry is the lack of new tier-one and tier-two discoveries that are needed to replace the mines that will come to an end in the next 15 to 20 years. With Australia's reliance on its resource sector, this is likely to put a big dent in future government revenue.
Forecasts compiled by MinEx Consulting show that in the gold sector alone, the number of mines expected to be operating by 2055 will drop to 31, from 62 in 2020.
Total production is predicted to slump to about 3.4 million ounces per annum by 2055, from about 8 million ounces per annum now, which will see total gold revenue more than halved to A$5.10 billion.
The original idea behind the EDI was to have something similar to Canada's flow-through share scheme, which basically allows investors to claim a tax deduction when they invest in junior explorers.
However, what was implemented by the Australian government in mid-2014 was a modified version that was capped at A$100 million over three years.
The main problem with the initiative was that, instead of junior explorers being able to promise investors at the time they conducted a capital raising that they would receive EDI credits, companies had to apply to the scheme and wait until the end of the financial year to find out how much shareholders would get back.
There is some hope that a similar initiative will be considered, with Bennison saying Federal Resources Minister Matthew Canavan has "left the door open" for the industry to put forward other options that could deliver a better outcome. Canavan met with the Association of Mining and Exploration Companies and industry leaders in Perth recently to explain his decision to abolish the EDI.
"We're sitting down right now and trying to tweak the existing model in a format that we think will be far more successful," he said. "We've pulled a working group together and we've already got some ideas that we're going to discuss and then put back to government."
SNL Metals & Mining is an offering of S&P Global Market Intelligence.