Australia’s International Competitiveness Must Be Restored

By: Simon Bennison, CEO

The mining and mineral exploration industry has been a major contributor to the Australian economy through the creation of jobs, investment in regional communities, and numerous taxes and royalties which have contributed to Government revenue streams.

In the past seven years, the mining industry has paid over $117 billion in Federal taxes and State royalties.

The mining industry is also a significant driver of Australia’s GDP. The industry accounted for around 80% of growth in GDP in the March 2014 quarter. For the year 2012-13 the industry contributed 10% of Australia’s total GDP with 2% of the workforce.

The carbon tax has imposed significant costs and inflationary pressures to Australian businesses, consumers and the economy. In a global economy, this has put them at a significant competitive disadvantage.

Overseas competitors are not subject to the same taxes and costs which has resulted in capital going to more attractive jurisdictions such as Canada and Africa. A recent PwC report ranked Australia’s overall tax rating at 133 out of 188 countries analysed. The research found Australia has a total tax rate of 47.7%.

The Association of Mining and Exploration Companies (AMEC) is extremely pleased that the Federal Government has recognised the damage that the carbon tax has done to Australia’s reputation and repealed the tax.

The repeal will help restore Australia’s international competitiveness and reputation as a safe and stable investment destination.

The carbon charge through reduction in diesel fuel tax credit meant all AMEC members have been paying more for their energy. In many cases projects are very isolated and do not have access to the power grid and therefore
rely on diesel fuel as the primary source of power.

Diesel fuel is a significant input cost and accounts for up to 25% of total costs for base and precious metals. The reinstatement of the diesel fuel credit to pre-carbon tax levels of 38.143 cents per litre will therefore have
a significant positive impact on mining and mineral exploration companies.

This should have a flow on effect to the level of investment in mining and exploration projects, and therefore jobs and Government revenue streams.

These resources companies are providing the future economic growth in the Australian economy, especially in rural and regional communities where companies provide thousands of jobs and much needed social infrastructure.

However to ensure this remains the case, Australia must have the right policy and business conditions to attract ongoing investment in mining and exploration projects to sustain the industry for the future.

Investment in Mineral Exploration Essential

A key issue for AMEC has been the fact that the rate of discovery of new mines has not kept pace with the depletion of existing mines. At the same time, Australia’s share of global exploration has reduced from 21% in 2002 and
now stands at 12%.

The Australian mining sector has been a world leader, successful in a growing competing global environment, but is still dependent upon past discoveries.

Recent research from the University of Western Australia shows that about half of Australia’s non-bulk commodities mines would be exhausted in between 7 and 18 years. Their research also showed that it takes on average 7 years to convert a discovery into an operating mine.

This long ‘discovery to mine’ lead time means that action must be taken now to prepare for the future and extend the life of the mining industry – and associated Government revenue streams – over the next decade and future
generations.

Data from the Australian Bureau of Statistics (ABS) paints a similar picture. There have been consistent decreases in expenditure and metres drilled for greenfields exploration.

Metres drilled on greenfields (new deposits), at 300,000 metres for the March 2014 quarter, is the lowest in the last 10 years, and is lower than the March 2009 post GFC quarter of 338,000 metres (refer graph in brochure below).

Expenditure on greenfields (new deposits) is also the lowest since June 2006.

The number of Initial Public Offerings (IPOs) for Australian based mineral projects has also been declining. There were only 12 IPOs in 2013 and three so far this year – well below the high of 126 in 2007. Other capital
raisings have been few and far between.

The fact that 67% of funds raised in 2013 for mineral exploration projects on the Australian Securities Exchange (ASX) went to offshore projects, the highest proportion since 2008, is also of concern.

This is markedly impacting the level of investment in exploration projects in Australia, affecting local communities, service providers, contractors and the Australian economy.

Solutions

To reverse this trend, AMEC has been advocating for policy changes that will make Australia a more desirable place
to invest. This includes an Exploration Development Incentive (EDI), announced by the Federal Coalition in its Resources and Energy Policy paper, and repeal of the carbon and mining taxes.

The EDI will allow investors to deduct the expense of eligible mineral exploration expenditure against their taxable income and should provide a much needed boost to investor confidence.

A ‘no taxable income’ test will ensure that the program is only available to junior minerals explorers who will be able to pass a tax credit to their resident investors based on eligible exploration expenditure in Australia.

Ongoing investment in greenfields exploration is essential in order that these junior companies can discover the mines of tomorrow.

Looking to the future

We must continue to restore Australia’s reputation as a safe and stable place to invest so the sector can continue to provide the significant economic and social benefits and Government revenue streams.

The repeal of the carbon tax and mining tax, as well as the introduction of initiatives such as an Exploration
Development Incentive, will go a long way to recovering some of the lost competitiveness that has occurred in
recent years.

www.amec.org.au

To read our full editorial profile as it appeared in The Australian Business Executive magazine, click on the cover image below: