Pulling mining out of a big black hole

Briefly, a FTS scheme allows exploration companies to pass on tax deductions earned during the course of exploration to shareholders.

In the lead up to the 2007 Federal election the ALP promised a FTS scheme.

Recently the South Australian Chamber of Mines and Energy has proposed an efficient and administratively simple way of implementing one - using an extension of the franking credit scheme. It’s an excellent proposal.

The federal government should implement it at the first opportunity, preferably straight away.

I suspect that treasury is resisting all attempts to implement one.

Treasury have always argued that the mining industry should invest in its future by undertaking green fields exploration. In a textbook world they would be right but the world has moved on since the textbook was written. The mining industry has split to become a mining industry and an exploration industry.

The mining industry is all about maximising returns and reducing risk while the exploration industry is all about taking risks. Our future rests with the exploration industry and so we need to make the business of taking risk less risky.

If we don’t do this, our flow of future mining projects will get smaller and smaller affecting our balance of trade, future jobs and government business tax income.

Even as I write this article, friends of mine are contemplating whether or not their business even has a future, how many staff they should lay off or if they can afford to undertake exploration this year. This affects not just their companies but many of the service industries associated with them.

Many companies are finding that they cannot raise any capital at all. An FTS scheme would make it easier for companies to raise cash because investors would know that they will get some return for an investment in the incredibly risky exploration sector.

It’s not a big cost in light of the recent $42 billion stimulus package. It’s estimated to cost between $250 and $500 million but the Canadian experience has proven that it is well worthwhile.

By introducing an FTS scheme we could reduce the number of jobs that are lost in the exploration industry. One of the problems we ran into in the recent exploration boom was that in the bust before it, many geologists and other skilled employees left the industry permanently. We need to avoid that this time around.

The Treasurer should see past the worries and textbooks of Treasury and implement a Flow Through Share scheme straight away.