Commodities slump deflates EIS benefit

The state government's scheme to stimulate mining exploration has provided wide-ranging economic benefit, but the negative effect of falling commodity prices could stifle any further gains, according to modelling by a new report.

An economic impact study released today by Mines and Petroleum Minister Bill Marmion shows every $1 million invested in Western Australia's exploration incentive scheme returns a net benefit to the state of $23.7 million.

This benefit consists of $10.3 million from additional privately funded exploration activity, $6.2 million recovered in additional taxes and royalties, $3.9 million spent on additional construction activity, and $3.3 million in wealth generated from developing new mines.

Additional expected benefits also include job creation opportunities.

The study found every $1 million spent under the EIS helped generate 12.5 full-time jobs in minerals exploration for three years, 27.6 full-time positions during a two-year new mine construction period, and 7.4 full-time jobs over 13 years in mine production.

However, sensitivity analysis modelling within the study also found under conditions with low commodity prices the expected value of an average drilling campaign, despite state incentives, was negative.

The study assumed low prices to be $65 per tonne for iron ore, $1,200/ounce for gold and $15,000/t for nickel.

Currently, the iron ore price is hovering around the $A65/tonne mark, while gold has been around $1,500/oz and nickel around $18,000/t.

"For low price scenarios the expected value of an average drilling campaign is negative," the study found.

"As such, the expected private sector exploration response to incentives under a low-price

scenario is expected to be modest; as are the benefits that accrue to the state.

"If all commodity prices are seriously depressed, government incentives may not be enough to allow new funds for greenfield exploration to be raised."

However, the report found that projects such as brownfield exploration, which were likely to have a below-average drilling requirement, were still likely to be funded.

Mr Marmion said the study, which was undertaken by ACIL Allen Consulting, showed that, by encouraging more drilling the state was increasing the likelihood of major discoveries leading to mines being developed, jobs being created and royalties providing long-term benefits to the state.

He said the government had renewed its commitment to the EIS by approving annual funding of $10 million from 2014 to 2017.

"This brings total funding for the scheme to about $130 million and as this review confirms, we are certainly getting tremendous bang for our buck," Mr Marmion said.