SA Group wants to remove investment hurdles
IN THE LOBBY: The South Australian Chamber of Mines and Energy (SACOME) says Federal policies addressing a flow through shares scheme, changes to the Petroleum Resources Rent Tax, and urgent resolution of South Australia’s infrastructure hurdles are essential for the State to realise its resources wealth and deliver much needed jobs and funds to the economy.
The group said implementing an exploration tax credit policy such as a flow through shares scheme would encourage much needed investment in junior resources companies and secure the start-up capital required for crucial mining and energy projects in the pipeline.
SACOME has been calling for an exploration tax credit policy since before it was first promised by the Federal Labor Government in 2007.
“With recent downtrends in mineral exploration expenditure, softening commodity prices and extremely constrained capital markets, junior resources companies are facing tremendous challenges right now to develop their deposits into economical projects,” SACOME chief executive Jason Kuchel said.
“The junior resources sector is absolutely vital – many people do not realise it’s the ‘engine room’ needed to find the resources, upon which our economy is so dependant.”
SACOME said the scheme would allow companies which are unable to access tax deductions as they accrue – given their lack of income – to issue shares with these deductions ‘flowing through’ to investors.
This would provide a strong incentive for shareholders, making investment in these juniors attractive while addressing the lack of start-up capital in a competitive market.
Labor first promised to introduce the scheme under the Rudd Government in 2007, but dropped this crucial policy when the mining tax was developed.
“Australia continues to lose its share of global exploration expenditure, down from 21 per cent in 1996 to only 17 per cent in 2010,” Kuchel said.
According to SACOME, the South Australian resources industry is in desperate need for key infrastructure development where there is clear market failure.
“The two major infrastructure issues holding back substantial development in this State are the need for a multi-user deep water port, and the upgrade of electricity transmission networks along the Eyre Peninsula,” Kuchel said.
“The Federal Government should use bodies like Infrastructure Australia and the Export Finance and Insurance Corporation (EFIC) to provide funding agreements to stimulate infrastructure in the State where the market has failed to deliver a solution.
“This solution has already proven its success with the Federal and State Governments assisting Nyrstar last year to arrange a funding agreement with EFIC to upgrade the Port Pirie smelter, securing the future of the company in the community and providing a solution to long-standing environmental issues.”
SACOME is also calling for key changes to the Petroleum Resource Rent Tax (PRRT).
These include the inclusion of contiguous licenses so exploration expenses are eligible to be deducted against production revenue, and a low profit offset where profits below $50 million are not subjected to the PRRT.
“With key basins tipped for significant unconventional oil and gas production, these two policy changes to the PRRT are essential for securing a prosperous energy industry in our State,” Kuchel said.
“In the Cooper Basin alone, there are junior companies operating alongside the majors to tap into a potential 29 billion barrels of oil, and a further 2.6 trillion cubic metres of gas, as identified by the Energy Information Agency.
“It is imperative that the junior companies operate in an economic environment where they can expand and diversify into other fields and basins.
“A low profit offset mechanism, which is currently utilised in the MRRT to shelter junior miners with low profits from the effects of this tax, should also translate into the PRRT for junior oil and gas companies.”
SACOME is calling for 10 key policy priorities to be addressed by the major parties before the Federal election.
Full details of these 10 election priorities can be found at www.sacome.org.au
A detailed report including responses from the key political parties will be published in the SA Mines & Energy journal, available in August.