PERTH (miningweekly.com) – The South Australian Chamber of Mines and Energy (Sacome) has called on the federal government to introduce a minerals exploration tax credit (METC) to boost exploration expenditure.

The METC would allow Australian explorers with no taxable income to voluntarily pass current losses on to Australian resident shareholders in the form of a tax credit.

Sacome said on Tuesday that the METC would provide a strong incentive for shareholders to commit capital to the exploration sector, making investment in these juniors attractive and addressing the lack of start-up capital in a competitive market.

“Many people do not realise that the junior sector is critical to resource development, being the 'engine room' needed to find the mineral resources upon which the economy is so dependent,” said Sacome CEO Jason Kuchel.

“An METC policy will reinvigorate Australia’s mining sector, which has recorded a drop in share of worldwide exploration over recent years – from around 21% of world exploration spend in 1996 to just 12% in 2011.”

Kuchel noted that this decrease, combined with softening commodity prices and the constrained capital markets, was providing a challenging environment for junior resources companies trying to develop their deposits into economical projects.

Sacome councillor Alice McCleary in 2008 developed an METC model suitable to Australia, based on Canada’s highly successful Flow Through Shares scheme, which resulted in that country growing its exploration spend to 18% in 2011, and hosting more mining companies than any other country in the world.

This model is based on Australia’s franking system and has several key advantages, including minimising administrative and tax compliance costs, minimising risk for investors and minimising distortions between shareholders.

“The key aspects of the model are that it aligns with current taxation laws, minimising additional red tape; it provides a credit to shareholders which are akin to franking credits; it is only eligible to junior explorers; and it stimulates investment in greenfield exploration to discover the mines of tomorrow,” added Kuchel.

He noted that the additional economic activity and taxation revenue created by the introduction of a METC would offset the cost of the scheme, and could potentially add billions of dollars to the gross domestic product (GDP).

An independent report into the scheme found that it could create 534 jobs across the exploration and associated mining services sectors and contribute $231-million to GDP. If some of the exploration resulted in viable projects, flow on effects could support over 4 000 jobs across the sector and up to an additional $2.2-billion in GDP.