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Explorers call for greater incentive

AUSTRALIAN exploration levels have remained flat as increasing numbers of small-to-medium resource companies look offshore, adding their weight to increasing global exploration expenditure.

Despite recent surging commodity prices and strong equity markets, industry bodies including AMEC, WACME, Minerals Council of Australia and APPEA have called for incentives, such as tax concessions, as well as a streamlining of regulatory processes, to breathe life back into the sector.

WA, which accounted for around 52 per cent of Australia’s mineral resources production in 2003, has dropped from 10 per cent of the world’s exploration spend to slightly less than 8 per cent, while almost 46 per cent of the capital raised by WA-based resource companies that have listed on the ASX since January last year will be spent overseas.

The KPMG 2004 Equity Market Survey: Independent and Mid-Tier Resource Companies, which looked at small-to-medium companies’ capital raising issues, found there was a consistent trend towards international investment among Australian small-to-medium resource companies.

According to KPMG, exploration expenditure overseas by small-to-medium Australian resource companies has more than doubled in the past five years – from about 25 per cent of capital raised in 1999 to about 50 per cent last year.

Also, about 65 per cent of respondents said they would like to raise equity capital on the London-based Alternative Investment Market (AIM) within the next five years.

Among the reasons offered by local explorers for the move offshore are expensive and time-consuming land access regulations as well as a lack of longer-term investor interest and fierce competition for ground. The international market also appeals for its friendly regulatory regimes, limited competition and modern business technology.

There have been several Federal and State reports into issues affecting the exploration industry, but little has been done so far, according to industry bodies.

Both the WACME and AMEC have called on the Federal and State governments to start implementing recommendations from the Mineral Exploration Action Agenda and the Prosser and Bowler Reports, particularly a flow-through share scheme.

While the Western Australian Government has made some changes, and the Federal Opposition says it will support a flow-through share scheme, the Federal Government has yet to commit to two key recommendations the industry is calling for – a flow-through share scheme and increased funding for pre-competitive geo-scientific information.

The Federal Government says it will consider the two items for next month’s budget.

AMEC CEO Anne Arnold said the industry was beginning to accept a stricter regulatory regime, however  she argued a flow-through share scheme was the key as it would provide longer-term investor interest to sustain explorers in Australia having to deal with more rigorous regulations than other parts of the world.

She said the Australian mining sector needed more support.

Geological Survey executive director Tim Griffin said the economy in WA in its current form would only be sustainable if exploration expenditure in the State was expanded.

“The view is the resource sector is so important to the WA economy it will only be sustainable if new deposits are discovered,” Dr Griffin said.

“You can’t develop deposits that are not discovered and the only way to discover a deposit is to explore, so we have got to get people to explore by risking their exploration dollars in WA.”

The primarily role of the Geological Survey is to attract exploration investment in WA.

Dr Griffin said despite the recent drop in WA’s share of global exploration expenditure, WA – the strongest of all States, posting a $13.5 million increase last year – was maintaining its national lead.

He said there had been some recent effort put into helping the industry through Native Title support and changes to the Mining Act, but said there was room for further changes.

“There is no doubt when you talk to the Canadians they see it [the flow-through share scheme] as being fairly important in keeping the general public’s interest up in mineral exploration because they are able to get tax deductions for investing in companies that do not have a cash flow,” Dr Griffin said.

But companies had to deal with community issues everywhere in the world, he said, and that Native Title was sometimes being used as an excuse by smaller exploration companies, trying to justify a lack of expenditure on a licence.

“I am not denying that it can delay access to the ground but I don’t think it has ever stopped anybody who has got a serious exploration program or a ‘you beaut’ deposit,” Dr Griffin said.

The WACME remains concerned about expenditure levels, saying that despite a small increase in Australian spending last year, ABS figures reveal that the expected mineral exploration expenditure for this year will decrease.

 

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