Australian exploration spending increasing

On the exploration front, there have been two items of good news this month.

Exploration increasing

First, mineral-exploration expenditure is increasing in Australia, following the low reached last year.

In terms of minerals, gold remains the dominant sector, accounting for approximately 45% of total exploration expenditure.

But this year, there has been an encouraging increase in expenditure on base metals (e.g. copper, nickel, zinc).

In terms of states, Western Australia accounts for about two-thirds of exploration expenditure.

But since last year, there has been a jump in New South Wales, which (apart from coal) has gold and base metals. Expenditure in Queensland, the second-most important mining state, has been steady (albeit at a much lower level than during the boom years).

The increase in exploration expenditure is consistent with other indicators (e.g. strong export growth, improving supplier activity) that mining, battered by the downturn of the last few years, is turning around.

Government encouragement of exploration

Second, the Prime Minister, Malcolm Turnbull, announced on 2 September that the government is to commit A$100 million to encourage exploration by junior mining companies (meaning in this context small-to-medium-sized companies that focus on exploration).

Under the scheme, “Australian resident investors will receive a tax credit where the exploration company chooses to give up a portion of their losses relating to their greenfields exploration expenditure in an income year”.

As explained by law firm Gilbert + Tobin, “this important tax benefit takes deductions from an exploration company and passes them to investors as a credit against tax payable on other income”.

The trouble facing a junior mining company is that it “is likely to have no income for many years until it turns a profit from a successful mine and therefore does not benefit from deductions” until this occurs (which in many cases it never does).

The mining industry has been pushing for such a scheme for some years. It is based on the so-called “flow-through share” scheme that operates successfully in Canada.