The mining industry is doing it tough. With unstable commodity prices and higher costs, major and minor companies are feeling the pinch.
As the Federal budget this year pulled exploration deductions and thin capitalisation rules, industry leaders warned it could accelerate the mining investment downturn.
And junior miners and exploration companies will feel the brunt.
The federal government overturned a 2001 budget decision that allowed major miners to write off the cost of purchasing smaller companies that have carried out exploration activities.
Minerals Council of Australia acting chief John Kunkel said changes to thin capitalisation rules and exploration tax arrangements will dent Australia’s reputation as a steady place for business, potentially increasing sovereign risk.
As the industry comes to grips with the downturn, the Queensland government is providing $30 million for the Future Resources Program over three years.
The new exploration funding will help the Geological Survey of Queensland (GSQ) search for new mineral deposits across the state over the next three years and secure the future of the industry.
Minister for Natural Resources and Mines Andrew Cripps outlined the funding at the annual Queensland Exploration Council breakfast in Brisbane in June. He said the industry itself would decide where almost a quarter of the funding would be allocated.
Queensland Exploration Council chairman Dr Geoff Dickie said the funding indicates the government recognises that exploration needs a boost in Queensland.
“It’s quite a substantial allocation in a time when the overall budget rhetoric is that the state is short of money,” he told Australian Mining.
“The government, with the consultation of the industry will be able to bring forward some better prospects for exploration to define areas where people have a better chance of finding mineral deposits. This will increase the take up of land for exploration.
“The involvement of industry in determining what projects go is innovative and a very welcome initiative.”
Seven GSQ initiatives will be funded in the next three years. These include Xstrata 's Mount Isa geophysics, with seismic and crustal conductivity surveys in the Cloncurry, Julia Creek and Dajarra-Boulia areas to boost greenfields exploration in the region.
“It’s going to give a better definition of the mineralised areas underneath the cover rocks that are hidden now,” Dickie said.
Dickie believes it could be two to three years before new maps and interpretations of the geology in Mount Isa are created.
A mineral resource assessment initiative is also planned, with geological mapping and sampling to re-examine mineral potential in the region, such as rare earths.
The geochemical data extraction initiative involves extracting geochemical data from the Department of Natural Resources and Mines’ company report archive for searchable access to the industry, government and the public.
“The survey will collate soil, stream and rock geochemical sampling company reports into a database accessible to the public so people will be able see what geochemical results they are interested in rather than having to go through a whole lot of reports,” Dickie said.
He added this will quickly define where there could be some mineralisation.
Dickie emphasised the importance of exploration for Queensland, highlighting how the state was reaping benefits of coal and the coal seam gas industry.
“That was started by junior companies 10-15 years ago and that has now turned into an investment of $56 billion in Queensland with the LNG industry.”
He said early stage exploration is vital to realise where new deposits might be, where explorers can then follow up by proving its existence.
Western Areas finance director David Southam agreed and said policy and regulation changes that hamper overseas investment and exploration spending was not good for the industry.
“Exploration companies are the lifeblood of the mining industry, and if you look at the statistics it’s been steadily declining over the last few years,” he said.
“So anything that hinders (exploration) is not good. It’s the nursery of the industry and the nursery is getting hit. I’m sure there’ll be a lot of argy-bargy during consultation.”
Dickie said in a time of downturn, it is important to invest in the smaller companies in the exploration phase with the belief that it will yield returns.
There has been a period where investors have put their money into blue chip stocks such as BHP Billiton and Rio Tinto. However, investing in some of the higher risk, cheaper stocks will keep the industry going in the long term, he said.
His other recommendation during a downturn?
“Making a big discovery would help.”