21/05/2008 - 22:00

Flow-through share scheme on the way

21/05/2008 - 22:00

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It may have missed this year's federal budget, but resource companies are hopeful Kevin Rudd's new federal Labor government will stick to its pre-election promise to deliver tax incentives in a declining exploration environment.

It may have missed this year's federal budget, but resource companies are hopeful Kevin Rudd's new federal Labor government will stick to its pre-election promise to deliver tax incentives in a declining exploration environment.

In the lead up to last year's election, Labor's then resources spokesman Chris Evans had promised to introduce the so-called flow-through shares scheme as soon as it was elected to office.

However, it missed the boat in this year's federal budget, despite longtime lobbying by numerous industry representatives and state politicians for its introduction.

The scheme allows the transfer of tax deductions from small exploration companies to individual investors who otherwise have to wait a long time to receive any return on their investment, normally given when the company enters production.

While the federal government appears to be swift in honouring its pre-election commitments, the resources industry seems to have been left by the wayside over the implementation of the scheme.

But there is light at the end of the tunnel, despite current resources minister Martin Ferguson previously flagging the scheme would not be introduced in this year's budget.

"We had no expectation.

We already met with minister Ferguson back in April regarding their preelection commitment to introduce flow through shares," Association of Mining and Exploration Companies chief executive Justin Walawski said.

"He was very clear that he had every intention of honouring the government's commitment to implement flow through shares, but he then said he would do that during their first term in office at a time of his choosing and in a way that met the policy objectives." "At this stage we see no reason to have any doubts about the minister's undertaking." In a move to uphold its pre-election commitment, Mr Walawski said the federal Department of Resources, Energy and Tourism planned to start work on the modelling of the scheme in June.

"In terms of modelling, that's being done, that commences in June this year with a discussion paper issued by the department, at which point industry will be invited to comment," he said.

It's a system the industry claims is necessary for Australia to compete on the global stage, according to AMEC, which has lobbied over the past decade for flow-through shares.

"We're just losing market share; at one point we had 21 per cent of the global exploration investment and now we have something like 12 per cent," Mr Walawski said.

"And that's all in the space of just over a decade." "Australia has effectively fallen from first to fifth in terms of the league ladder of countries that are attracting investment and its interesting that over the exactly the same time frame, Canada's moved from fifth to first." The Minerals Council of Australia credits Canada's boost following its introduction of flow-through shares in 2000.

The country is now home to 60 per cent of the world's public mining companies and has become the world leader for raising equity capital for mining.

While latest figures from the Australian Bureau of Statistics for the 2007 December quarter indicated exploration expenditure was up by $39.7 million, Mr Walawski said the increased cost of exploration covers the real situation.

"In Australia in terms of domestic levels of exploration, over the past decade or so, from September 1997 to September 2007, the number of exploration metres drilled in Australia has fallen 60 per cent," he said.

The Minerals Council of Australia said the total metres drilled in fiscal 2007 was 8,418 metres, well below the peak achieved in the 2002 financial year when 12,857m was drilled.

Meanwhile, the cost of drilling has increased from $79 a metre in 1994- 95 to nearly $140/m in 2007.

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