Exploration News (December 01, 2001)

Exploration spending at lowest level in nine years

According to Metals Economics Group (MEG)’s recent edition of Corporate Exploration Strategies, worldwide allocations for commercial precious and nonferrous metals exploration peaked at about US$5.2 billion in 1997. Since that time, the total amount allocated to this sector has declined for four years in a row to an estimated US$2.2 billion in 2001, a drop of almost 15% since 2000 and almost 58% since 1997. MEG estimates this year’s analysis of 679 companies’ exploration budgets (using a US$100,000 cutoff) totaling US$2 billion covers 90% of worldwide expenditures.

In 2000, five major mining companies disappeared through takeovers and mergers. The 2001 budgets of the merged companies are considerably lower than the combined 2000 budget allocations of the pre-merged companies, contributing to the overall worldwide budget decrease from 2000. To the end of October 2001, there had been an additional

six significant mining company mergers and proposed mergers. With the continuing consolidation of the mining industry, exploration budgets are expected to decline further next year.

All regions of the world experienced a decrease in 2001 budgeted expenditures compared with 2000. Exploration in Africa and Canada is declining less than the worldwide average, due mainly to the continued heightened interest in the pursuit of diamonds and platinum group metals in these regions.

The 585-page, two-volume 12th edition of Corporate Exploration Strategies is available on the internet or in print for US$11,000 from Metals Economics Group, P.O. Box 2206, Halifax, Nova Scotia, B3J 3C4, Canada. Phone: (902) 429-2880; fax: (902) 429-6593; e-mail: meg@meginformation.com; web site: www.metalseconomics.com

Canada’s innovative tax incentives for mineral exploration prove to be popular

Bruce McKnight, Executive Director of the B.C. & Yukon Chamber of Mines, is seeing a “resurgence of interest in exploration in western Canada by companies wishing to take advantage of the new super flow-through tax regime. Companies that have been exploring in other areas of the world are returning to western Canada and acquiring properties on which to explore for gold, base metals, diamonds and other mineral commodities.”

The government of Canada introduced the significant new tax incentive to stimulate mineral exploration throughout Canada on Oct. 18, 2000. British Columbia, Saskatchewan and Ontario responded with their own tax credits harmonized with the federal one.

The response from the exploration and mining industry has been enthusiastic. The Prospectors & Developers Association of Canada (PDAC) has reported that there were more than $30-million-worth of flow-through financings involving the tax credit before the end of 2000. The use of the tax credit in 2001 will be determined next spring when income tax returns are filed.

“In a very difficult market in which to raise equity finance for high-risk ventures, there would have been little money raised without the new tax credit,” says David Comba, PDAC’s Director of Issues Management. “It has been essential to the health of the junior mining sector in Canada.”

The new exploration tax credit allows investors purchasing flow-through shares to directly reduce their federal income tax by 15% of eligible exploration expenses. Investors can also deduct 100% of the cost of exploration from their personal taxable income through the Canadian Exploration Incentive.

In combination with the 100% Canadian exploration incentive deduction, the new tax credit will provide net federal tax relief of approximately 40% of the cost of exploration. The provincial incentives further reduce the cost to investors. This substantial level of assistance should help preserve jobs, protect world-class Canadian expertise in a high-tech activity, and stimulate grassroots exploration that the industry needs for the growth of mining communities across Canada.

The new tax credit is limited to exploration conducted from the ground or above ground. These are normally higher risk, preliminary activities, but can lead to successful mines. For instance, the billion-dollar mines Eskay Creek in B.C., Louvicourt in Quebec and Lindsley in Ontario were discovered by funds raised through the 33.3% tax deduction that was available in the mid-1980s.

The new tax credit is the result of representations made by PDAC, the Canadian Diamond Drilling Association and several Members of Parliament–Robert Nault, Benot Serr, Brent St. Denis, Guy St-Julien and Rginald Blair–who clearly understood the benefits of exploration in their communities.

For more information visit www.nrcan.gc.ca/miningtax