14/03/2006 - 21:00

Spending in a torpid state

14/03/2006 - 21:00

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New figures out this week paint a bleak picture for minerals exploration in Western Australia. Put simply, the locals are losing out to more aggressive operators from the eastern states and overseas.

Spending in a torpid state

New figures out this week paint a bleak picture for minerals exploration in Western Australia. Put simply, the locals are losing out to more aggressive operators from the eastern states and overseas.

Far from increasing at a time of historically high minerals commodity prices, mining sector exploration spending in WA is falling.

And despite the passing of new laws late last year to streamline WA’s mining approvals process, the backlog of mining lease applications has increased to more than 8,000.

When the Mining Amendment Bill 2005 was passed in December last year, the backlog stood at about 6,500, although its implementation only began on February 10 this year.

While national and international exploration expenditure by Australia’s junior companies in the December 2005 quarter remained about the same as the previous quarter, annual spending in WA is down from $250 million in 1997 to about $150 million.

Figures supplied to WA Business News by Intierra Resource Intelligence Ltd for the quarterly Exploration Survey show that $199.9 million was spent by Australia’s listed juniors throughout the world in the December 2005 quarter, only just above the previous quarter’s $199.6 million, $166 million in the June 2005 quarter and still well short of the record $246 million in June 1997.

Chief executive of exploration lobby group the Association of Mining and Exploration Companies, Justin Walawski, told WA Business News the state was being left in the wake of hard promoted exploration opportunities in South Australia, the Northern Territory and Queensland.

SA has just announced plans to spend $15 million over the next five years to help treble investment in mining exploration by 2007 and boost annual mineral production to $3 billion by 2010. An earlier scheme led to a 55 per cent increase in mineral investment there in the past 12 months, albeit from a much lower base than WA.

Similar investment incentive packages operate in Queensland and in the Northern Territory, which has undergone a 55 per cent increase in exploration licence applications in the past year.

“The other states have upped the ante in terms of attracting the exploration dollar and we are running well behind those states in securing our share of the national exploration spend,” Mr Walawski said.

AMEC remains concerned that the mining boom generally is causing federal policy makers to ignore the fact that Australia’s position on the world table of exploration expenditure continues to slide.

The respected Canadian-based Metals Economics Group said that, despite a slide from first place in the world’s top regions for mineral exploration in 2001 to fifth place last year, Australia remained solidly in second place by country.

The group put last year’s world non-ferrous (iron) minerals exploration spend at near $7 billion, up 34 per cent on the previous year.

Latin America (23.1 per cent) continued to be the most popular exploration destination, followed by Canada (19 per cent) because of its exploration tax incentives, Africa (16.5 per cent), the rest of the world (16.4 per cent) which includes Europe, the Former Soviet Union, Asia and the Middle East.

Australia was next (12.6 per cent), followed by the US (8.1 per cent).

Mr Walawski said the boom was hiding the need for greater spending by juniors, with production at record levels eating away at the nation’s reserves, as indicated by Australia’s gold reserves now being down to about 12 years.

It was also clear that, because of a lack of encouragement, Australian explorers were investing offshore and looking to raise their capital there as well.

Aspiring producers such as Cape Lambert Iron Ore, Tanami Gold, Fortescue Metals Group, Marengo Mining and Gindalbie Metals were all looking, or have received, funding from offshore.

For this reason London, Toronto and Vancouver stock exchange listings were becoming more popular to take advantages of better finance markets and tax incentives.

The more than 60 resources initial public offer floats (IPOs) last year and early this year raised an average of $3.5 million or less, enough for about 18 months’ operations based on current operating costs.

More than half of them had projects in less risky, easy to finance, brown fields projects (at or near existing or previous operations), and more than 20 per cent included offshore projects.

Half of the top 10 Australian explorers by expenditure, as seen in the Intierra survey data on the following page, have their major projects overseas.

Canada, the biggest spending minerals exploration nation, introduced a flow-through share scheme arrangement in 2000, which gives investors the right to deduct 40 per cent of their company’s exploration expenditure. About 60 per cent of all funds raised for exploration in the country come from flow-through shares.

Mr Walawski said that, since 2000, Canada had discovered more than 100 new deposits, while Australia had made no new major discoveries.

The Chamber of Minerals and Energy WA is adopting a wait-and-see attitude to the mining lease backlog, given the new legislation’s implementation only a month ago.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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