Flow-Through Share Scheme a must, Chalmers
By The AusIMM President, Greg Chalmers
In order to secure the current and future health of the minerals sector, The Australasian Institute of
Mining and Metallurgy (The AusIMM), the leading organization representing professionals in the
minerals sector, has renewed its call for the Australian Government to introduce a flow-through
share scheme as a priority in the next Budget. The Labor Party committed to the implementation of
a flow-through share scheme, aimed at encouraging junior exploration companies to maintain or
even increase their exploration activities, in its election platform.
This encouragement is more important now, at a time when traditional sources of finance and
investment have been strangled by fear on the financial markets, than at any time in recent
memory. A flow-through share scheme will provide a buffer for junior exploration companies, which
are the engine room of one of our economy’s most lucrative industries, from the worst impacts of
the economic crisis. Given the importance of the mining industry to our economy, it is critical that
the mining sector is not neglected as the Government acts to meet the challenges of the global
financial crisis. In the last six years alone an extra $A130 billion has flowed into corporate coffers
and government tax revenues as a result of rising commodity prices, enough to pay for three
stimulus packages.
The rationale for a flow-through share scheme is to rectify a current anomaly in taxation law that
adversely affects junior explorers. Currently, the Income Tax Assessment Act (ITAA) provides for a
tax deduction for exploration expenditure, presumably on the basis of it being a high-risk activity
with recognised benefits to the common economic good. However, junior exploration companies
(which make up more than 70% of companies engaged in mineral exploration within Australia)
generally do not generate sufficient taxable income to be able tot claim the deduction.
A flow-through share scheme would smooth out this anomaly by allowing companies which cannot
use the deduction themselves to pass it through to shareholders, who are then able to use it to
offset their own tax liabilities. Thus, a flow-through share scheme achieves twin objectives of
rectifying a tax anomaly and increasing the flow of capital to junior explorers.
At the end of 2008, leading industry organizations including The AusIMM, the Minerals Council of
Australia (MCA), the Association of Mining and Exploration Companies (AMEC), together with the
ASX, made a submission to Resources Minister Martin Ferguson urging the implementation of a
flow-through share scheme
As the Government approaches the final intensive phase of Budget decision-making, it must
implement policies that support the most productive and sustainable sectors of our economy. Far
more than any ‘economic stimulus’ package aimed at family shoppers, the very real stimulus of a
flow-through share scheme would ensure that exploration capital – the lifeblood of the minerals
industry – keeps flowing. A flow through share policy is now essential to the survival of an
important part of Australia’s minerals sector. The primary market has become a very difficult place
for raising exploration capital, and the shortage of capital has potentially devastating implications
for junior exploration companies. Many companies have shelved their listing intentions because of
volatility and a lack of investor support.
The quantifiable losses across the short term – jobs, exploration spending and new IPOs – are
significant. However what the bare statistics fail to capture are the longer term economic impacts –
loss of talent and of geoscientific knowledge about Australia’s terrain, and loss of infrastructure.
These losses will directly impact upon our ability to restock Australia’s mineral inventory through
exploration. Without forward looking and effective policy measures in the 2009-10 Budget,
decisions that are made in the next 24 months could do irreversible damage to the long term
competitiveness of the Australian minerals sector.
Background:
The Australasian Institute of Mining and Metallurgy (The AusIMM) is the leading organisation
representing professionals in the minerals sector in the Asia-Pacific region. Our role is to maximise
opportunities for professionals in the minerals sector through continuing professional development and
to promote the value of the minerals industry to the wider community.
Greg Chalmers is a Fellow and Chartered Professional of The AusIMM and has been elected
President of the institute for 2009. He is the CEO of Jellinbah Resources Pty Ltd, a mid-sized
private coal company and is also a director of the Queensland Resources Council.
-1-