PERTH (miningweekly.com) – The Australian resources sector has welcomed the passing of the exploration development incentive (EDI) through the Senate.

The federal government last year announced a budget of A$100-million over the next three years to fund the EDI, to support junior exploration companies conducting greenfield exploration.

The EDI will assist junior explorers in raising capital from private sector investors through a refundable tax offset. The EDI will enable eligible companies to pass on a proportion of eligible exploration expenditure, in the form of a tax credit, to shareholders living in Australia.

This expenditure would have previously been held as a ‘loss’ in the company’s balance sheet until such time as it was able to generate revenue and be claimed as a tax deduction.

The Association of Mining and Exploration Companies (Amec) on Wednesday welcomed the passing of the legislation, with CEO Simon Bennison saying the government had recognised the need to encourage investment in mineral exploration in Australia in order to discover the mines of tomorrow and sustain the economic benefits for all Australians.

“Restoring investor confidence and providing certainty and stability for business investment decisions are crucial to improving Australia’s international competitiveness,” Bennison said.

Pointing to the Fraser Institute’s Annual Survey of Mining Companies for 2014, Bennison noted that all Australian jurisdictions, except for South Australia, decreased on the Investment Attractiveness Index.

“Capital is extremely mobile so further damage to Australia’s reputation will see reduced investment in Australian projects and companies moving to more attractive jurisdictions.

“In 2014, 47% of capital raised on the Australian Securities Exchange for mineral exploration was invested globally,” he added.

Bennison stated that given the long lead time from discovery to a producing mine, investment in greenfield exploration was essential, adding that the EDI had to be implemented with urgency to stimulate the sector and provide clarity for investors.

The Chamber of Minerals and Energy of Western Australia (CME) also welcomed the Senate decision, with CEO Reg Howard-Smith saying that the industry body had long sought a form of incentive that recognised the long lead times between investment, exploration and production over a number of years and the risks faced by investors in these early start-up stages.

“Notwithstanding the transition under way in many major projects from construction to the operational phase, particularly in bulk commodities, the future pipeline of projects relies upon increasing the current level of exploration activity.

“Exploration is the lifeblood of future industry,” said Howard-Smith.

He added that the CME had worked closely with the Department of Industry over the past 18 months throughout the development process and ongoing consultation in the establishment of the EDI legislation.

“CME is pleased that many of our recommendations regarding eligibility, ease of administration and modulation process have been taken into account.”

The EDI would start from July 1, 2014 and would be capped at A$100-million over a three-year period prior to it being reviewed.

Howard-Smith said that at the first available opportunity, CME would be seeking to expand the limited cap and include oil and gas exploration expenditure as eligible.