Contents *

Preface *

Introduction *

Mineral Exploration Action Agenda *

Access to Land *

Access to Finance *

Access to Pre-competitive Geoscience Information *

Access to Human and Intellectual Capital *

This paper has been prepared by the Mineral Exploration Action Agenda Secretariat on behalf of the Strategic Leaders Group (SLG). The group is made up of:

Secretariat: Commonwealth Department of Industry, Tourism & Resources.

This paper draws heavily on the research papers prepared by four working groups over the past two months. The working groups comprised members drawn from industry and Government agencies. The recommendations in this paper are open for public comment until 28 April 2003.

Written comments can be forwarded by email to: exploration@industry.gov.au or by mail to:

CANBERRA ACT 2601

It is widely acknowledged that both the Australian and global mineral exploration industries have been through a period of very significant decline in the level of mineral exploration expenditure. Australia alone has seen expenditure plummet from a high of $1.15 million in 1996/97 to as low as $640.6 million in 2001-02, however, it is clear that this decline has also been accompanied by major structural change. The exploration industry is traditionally strongly cyclical and some might ascribe the current downturn to merely the effect of the latest cycle. However, there is evidence that these changes represent a fundamental shift in the nature of the industry. The changes are characterised by

• Considerable consolidation and rationalisation of ownership within the industry;
• Increased globalisation both within the resources industry and the supporting investment market;
• Difficulties accessing finance, particularly for junior exploration companies;
• Difficulties accessing land due to changing regulatory factors; and
• Decreased number of significant discoveries due to the relative ‘maturity’ of the Australian exploration environment.

Many of these changes are primarily driven by market forces at the global scale and while it may be neither desirable nor feasible for the government to intervene in issues of industry structure, it is critical that any policy relevant to the exploration industry is formulated in a context of understanding the structural changes that are taking, or have taken, place and the forces driving these changes.

The consequences of these structural changes combined are potentially very serious. At risk is the sustainability of Australia’s economic lynchpin – its resources industry. With more than $40 billion in annual export earnings from minerals and 240,000 direct and indirect jobs, the industry’s ability to find tomorrow’s mines is vital to the nation’s prospects of maintaining and improving the quality of life enjoyed by Australians.

The growth in Australia’s mining industry has resulted from a sustained exploration effort that Australia has enjoyed until recently, and the highly prospective nature of the continent. It is in the national interest that this exploration effort is maintained. The Government needs to review its policy support mechanisms impacting on exploration to ensure that this occurs.

The Australian minerals industry has always been characterised by a vibrant junior exploration sector with historically over 80% of mining companies listed on the Australian Stock Exchange falling into this category. The junior companies are critical to the continued development of the Australian minerals industry as historically, these junior companies have accounted for over 50% of significant discoveries of gold and base metals in Australia in the period 1970-97. They take the risks, are prepared to try innovative approaches to exploration, and as such have been a major contributor to the overall success of the industry.

The recent trend towards consolidation in the industry has seen the number of companies drop significantly. For example the goldmining industry historically has been the most diversified in the Australian minerals sector, but the recent consolidation means that two thirds of Australian production is now controlled by five companies, and nearly half of production comes from 12 mines.

While the juniors have dominated the exploration sector, about 80% of exploration spending has traditionally been by major companies. However varying proportions of the exploration expenditure of major companies is spent through juniors under joint venture arrangements. This trend has increased over recent years with production majors supporting junior exploration companies as part of the majors’ exploration strategy.

The implication of this trend is that the exploration future of the Australian minerals industry depends partly on the ongoing viability of the junior exploration sector. To the extent that the junior exploration companies face particular policy impediments or market failures specific to their circumstances, policy actions by Government to overcome these impediments or correct these market failures are important.

An additional issue is the current trend away from greenfields exploration, defined in the Bowler Report as more than 5 km from existing mines. In Western Australia, from 1997 to 2001, greenfields exploration expenditure fell from 40% of the total to 28%. During this period exploration activity has concentrated around existing mine sites. However this trend cannot be continued indefinitely if a mining sector is to exist, that is, an industry which is able to replace its depleting reserves with new discoveries.

Another important consideration is the benefit of mineral exploration to regional communities. These benefits include additional turnover in local businesses, direct employment, financial and in-kind support for indigenous communities and local non-government organisations and a significant contribution to the cost of running local government, particularly in Western Australia. Mineral exploration activities also add significantly to the national scientific and sociological data base, and have resulted in Australia becoming a world class centre of expertise in mineral exploration technology. It was estimated that for every $1 million of exploration investment, four jobs are created in remote areas and six in Perth.

Bowler outlines the effects on the Western Australian economy of the drop in exploration of $80 million for the five years considered (1996-2001). Investment was projected to be 2.2% lower, exports 2.3% lower and Gross State Product 1.6% lower in 2020/21. In dollar terms, the losses are in billions.

The Action Agenda process was set in train in response to the challenges facing the mineral exploration sector. The Minister for Industry, Tourism & Resources the Hon Ian Macfarlane announced the Action Agenda on 12 September 2002 and the Strategic Leaders Group was formed to lead the process. Following the first meeting on 19 November 2002, four working groups were set up to address the major issues impacting on the continued growth of the mineral exploration sector. The working groups were as follows:

• Access to Land
• Access to Finance
• Access to Pre-competitive Geoscience Information
• Access to Human and Intellectual Capital

Each of the working groups was chaired by members of the SLG and drew their membership from industry and relevant government organisations. The working groups spent 2 months researching the issues and developing draft recommendations. The groups drew on industry submissions to the current Inquiry by the House of Representatives Standing Committee on Industry and Resources into Resource Exploration Impediments, the Bowler Inquiry into Greenfield exploration in WA and the views of industry professionals.

Following exhaustive examination of the issues, a series of draft recommendations was brought to the SLG for discussion. At its meeting on 12 March the SLG refined those recommendations into 10 core priorities for action by government and industry. It is the view of the SLG that if implemented these actions will effect the greatest change, ensuring the industry’s continued viability.

The following outlines the recommendations from each of the working groups and the arguments for reaching such conclusions.

Recommendation 1 – Commonwealth, through the allocation of dedicated or linked support and funding to Native Title Representative Bodies (NTRBs), work in partnership with industry and the States and Northern Territory to develop regional template agreements for native title and heritage protection approvals processes that will reduce the backlog of tenement applications, improve relationships between miners and indigenous interests and provide ongoing access to land.

Recommendation 2 – Commonwealth and industry to promote the use of expedited procedure included under the Native Title Act 1993 by producing and promulgating information about the application and use of the expedited procedure, and lobbying States and the Northern Territory for the more general application of the expedited procedure when granting low impact exploration tenements.

Recommendation 3 – Amend the Aboriginal Land Rights (NT) Act 1976 to facilitate the application, assessment and decision-making processes for the grant of mining and petroleum tenure by restructuring the Land Councils, delegating decision-making authority to regional or local bodies and developing standard agreements for the grant of tenure.

Recommendation 4 – Commonwealth and industry to work with the States and Northern Territory through the Ministerial Council on Mineral and Petroleum Resources (MCMPR) to gather information on the procedural regimes for mineral exploration and the overlap between Commonwealth and State/Territory legislative responsibilities and develop a coordinated approach to resolving impediments to land access, including protocols covering mineral tenure, heritage, environment and Conservation Estate.

Access to land for mineral exploration has been a significant constraint on exploration for many years. The grant of tenure for minerals is made under state and territory mining legislation, but depending on the status of the land, this grant may be affected by a range of legislative regimes and policies adopted in each jurisdiction across Australia, and at federal level. When uncertainty arises, the attractiveness for investment diminishes and impacts negatively on mining activity in the country.

While access to land and resources is critical, the timeframe within which any decisions are made, and ultimately access is granted are also of significance. Decision-making processes, in relation to land access, that are timely transparent and provide certainty are in the interests of all stakeholders.

The land access issues that were identified as being of greatest importance for improving mineral exploration in Australia are:

In this context the study of issues affecting access to land highlighted the following:

• the application of the right to negotiate procedure in the Native Title Act 1993 (NTA) to exploration activity;
• the current backlog of applications for exploration tenements in Western Australia, Queensland and the Northern Territory;
• the lack of integration of Commonwealth and state/territory processes which, to varying degrees depending on the issues, impact on the mineral exploration industry; and
• the apparent lack of resources (financial and otherwise) being made available to ensure that native title parties can effectively participate in future act processes under the NTA.

Industry finds that the maze of processes which must be negotiated in order to obtain an exploration tenement is often costly and time-consuming. Parties from every stakeholder group prefer to seek outcomes through negotiation, however, the resource intensive nature of negotiating agreements about native title and heritage requirements can sometimes result in increased costs and delay. These costs are an added impost on mineral exploration companies, particularly for smaller companies.

The "expedited procedure" available under the NTA for low-impact exploration obviates the need for negotiation where there is no objection from NTRBs. Indeed, industry is of the view that the "right to negotiate" procedure is inappropriate for the exploration phase and should apply only to the mine development phase, but there are diverging views on the feasibility of correcting this apparent anomaly, ranging from legislative change through to negotiated outcomes. However industry also recognises the need to respect the rights of other stakeholders, and acceptance of the expedited procedure by all parties would provide a way forward.

This so-called "disjunctive" approach postpones negotiation until there is some clarity for all parties as to what, if any, development is proposed. Conversely, the "conjunctive" approach, which seeks to negotiate the terms of development at the exploration phase, offers greater certainty to the company that it will be able to develop a mine if its exploration is successful. It does, however, require much more effort "up front" for all parties.

The development of regional template agreements together with an increased use of the expedited procedure under the NTA would go a significant way to addressing these concerns.

State-brokered regional template agreements (acceptable to the states and territories, NTRBs and the mining industry) could be used to resolve a range of issues, including native title and heritage issues. For example, a regional agreement about cultural heritage protection could facilitate the use of the expedited procedure in a particularly prospective area by reducing the chances of native title holders raising any objections to its application.

This proposal is based on the work of the Heritage Protection Working Group in Western Australia. The model proposed here is highly generic, and would have to be modified for each state or territory to take account of local approval processes and regional initiatives. However, the model involves no change to legislation, only to policy. Implementing the model relies on the effective working of the NTRB system as well as the willingness of native title parties and industry to agree.

To ensure viability of the agreements, they should be commercially sound and include input from all relevant parties (as listed above). These agreements should also be tailored to properly address specific regional issues, as generic templates relating to large areas have not proven successful in stimulating increased approvals of applications for exploration tenements.

Industry supports these initiatives. However, the SLG remains of the view that the level of funding by the Commonwealth of NTRBs needs to be reviewed to ensure that adequate representation for native title parties is possible. The Commonwealth should also ensure that skill levels and expertise are being allocated to the necessary areas. If necessary, dedicated or linked funding should be made available by the Commonwealth to encourage the development of regional template agreements. These proposals would not only reduce the backlog of applications, they would also improve relationships between miners and indigenous interests.

It is acknowledged that the cost impost on industry of pursuing these agreements could be substantial. Industry has previously discussed with the Commonwealth the possibility of providing tax relief in respect of such activities. While a longer term strategy, the SLG considers that there is benefit in further consideration of this proposal.

The expedited procedure has, until recently, not been generally applied to low-impact exploration and prospecting tenements. Despite recent progress on this issue in the Northern Territory and widespread application of the procedure in Western Australia, there remains an apparent unwillingness by some states to a more general application of this procedure. In addition, there appears to be a lack of understanding amongst industry of the procedure and the sorts of tenements and activity to which it could apply.

The Commonwealth should produce and promulgate information about the application and use of the expedited procedure. This will involve drawing upon the jurisprudence being developed by the NNTT in order to produce examples that explain how the expedited procedure can be used.

Industry should lobby state and territory governments to encourage them to use the expedited procedure when granting low impact exploration tenements. An increased awareness amongst industry of the requirements and benefits of the expedited procedure will assist them in encouraging state and territory governments to rely on these provisions.

It is acknowledged that the Native Title Act 1993 has impacted on access to land for mineral exploration, and the application of the Act and in particular the Right to Negotiate have been costly for the exploration sector. However, the SLG believes any policies developed, or decisions made in relation to land access must balance the interests of all stakeholders with the need to provide effective and equitable access to land and resources.

The recommendation concerning ALRA, addresses the excessive time and cost of granting an exploration licence (EL) on Aboriginal freehold land in the Northern Territory which is the greatest impediment to increased expenditure on exploration in the Northern Territory.

Of particular concern is the cumbersome nature of the land council structure, which is causing significant delays in the processing of applications for exploration licences.

The ALRA establishes a complex legislative framework that most stakeholders agree is not delivering the intended or required outcomes. This ultimately has a detrimental impact on Indigenous peoples and the community as a whole.

The disparate views of the Traditional Owners, the Land Councils, the industry and the Territory Government are such that it is unlikely that cooperative agreement on administrative and legislative regime changes will be reached.

The recommended action is that the Commonwealth Minister for Aboriginal and Torres Strait Islander Affairs facilitates the introduction of administrative and legislative changes. Principally, this would involve amending the ALRA provisions requiring the full land council’s ratification of the traditional owners’ decisions in relation to exploration submissions to provide that Regional Councils can ratify the decisions of the traditional owners. This would address the structure and fund utilization of land councils so as to facilitate the resolution of agreements pursuant to ALRA for the grant of ELs on Aboriginal freehold land in the Northern Territory.

The rationale behind recommendation 4 concerns the States and territories primary responsibility for issuing exploration tenements. The regimes and mechanisms put in place in each jurisdiction differ according to the circumstances in each state and territory. On some issues the state and territory governments are looking at the development of a more consistent approach to regulation, at least at a ‘strategic principle’ level. On issues such as native title, multiple land use and environment assessment, each jurisdiction is subject to overarching Commonwealth legislation, however, federal regimes will have different implications and applications in each jurisdiction according to their varying circumstances.

Both small and large mining companies seeking exploration tenements are required to navigate a maze of procedural regimes in order to have a mineral exploration tenement granted to them. These include (depending on the status of the land involved) the mining, heritage, planning, conservation and environment regimes of the relevant jurisdiction, as well as Federal regimes. It is the SLG’s view that states and territories, in partnership with the Commonwealth, could do more to ensure that these regimes are better integrated.

Similarly, there is limited recognition that multiple and sequential land use management regimes operating in parks and reserves can protect conservation values while allowing appropriately controlled exploration to proceed. Inconsistent multiple land use policies have inhibited exploration planning. With varying outcomes, multiple land use arrangements have been the subject of Commonwealth consultations with individual jurisdictions, eg through the Regional Forest Agreement process.

The immediate aim is to gather information on the various procedural regimes that a mineral explorer needs to deal with in order to gain a tenement in a particular jurisdiction. It would be appropriate, for this to be coordinated by the Commonwealth, either on a bilateral basis or multilaterally through the Ministerial Council on Mineral and Petroleum Resources (MCMPR) which includes the mines Ministers of all Australian jurisdictions. The information collected would be collated and made available to all relevant parties, including industry.

The intention would be to examine the interrelationships between the various regimes in each jurisdiction to identify impediments to the mineral exploration industry and make recommendations for action. Progressively breaking down the silos of information would not compromise the independence of the states and territories in these areas, but would ensure that all jurisdictions were reviewing their regulatory environments in order to integrate processes and procedures as effectively as possible. Work could then be done on ensuring that the processes and procedures developed by state and territory administrations mesh more effectively with overarching Commonwealth processes.

The ultimate objective must be to have a system in Australia which reflects world’s best practice.

While a high level of consistency between the various jurisdictions is a desired outcome from Industry’s perspective, it is accepted that there will be some divergence based on the particular circumstances that operate in that particular state or territory. However, any such divergence should be open to scrutiny by all parties.

The MEAA recommends that the Commonwealth Government take action to redress market failures that impact on the efficient level of minerals exploration expenditure in Australia. The principal objective of the recommendations set out below is to correct these market failures and enable the mineral exploration sector to compete for venture capital in equity markets.

Recommendation 5 – The Commonwealth Government introduce a flow through share scheme to remove the tax asymmetries that deny companies with insufficient taxable income the full benefit of immediate deductibility of exploration expenses and other exploration related expenses.

The flow through shares scheme should have the following features:

1. tax deduction uplift factor for eligible expenses of 150 per cent;
2. that for capital gains tax purposes the cost base of the shares is set to zero for Capital Gains Tax considerations;
3. designed in accordance taxation principles of economic efficiency, equity and administrative simplicity, incorporating appropriate integrity measures.

Recommendation 6 – Introduce a general tax deduction uplift factor of 125 percent for greenfields exploration expenditure (other than eligible flow through share scheme expenditure)

Recommendation 7 – Implement the full taxation deductibility of all costs associated with Native Title requirements

Secondary measures, which would also meet the principal objective, include a system of tradeable tax credits, taxation rebates and a targeted fund for greenfield exploration, based on the current Innovation Investment Fund program.

Exploration represents the first stage in the mining and minerals processing sequence and the exploration expenditure necessary to discover minerals deposits are unique to the minerals industry.

Moreover, because a mine is a wasting asset, exploration is crucial to the continued existence of the industry in the long-term. The industry constantly requires high risk funds to be applied in the search for new ore deposits. The establishment, expansion and replacement of operations depend on the success of this unique, costly, high risk exploration activity. To operate in a highly competitive, global market, the industry therefore requires an overall legal and regulatory framework that provides for appropriate access to land and established rules for environmental approvals, taxation and the utilisation of economic infrastructure.

Major and mid-sized mining companies, ie those with producing mining operations or advanced projects, can fund exploration programs through an allocation of internally generated funds. Junior companies, ie those still in the project identification stage, and as such have no producing mining operation, rely on the ability to raise funds externally to carry out exploration.

Impediments fall into two broad categories: impediments related to the aspects of the functioning of the capital market in Australia, and the impact of a number of regulatory factors related to capital raising by minerals exploration companies in Australia. While the impact of the functioning of the capital market is fundamental, regulatory factors provide evidence of impediments to the efficient level of mineral exploration expenditure in Australia, and are amenable to policy intervention and/or correction.

The private equity market in Australia remains relatively immature with a limited supply of risk capital to smaller businesses. The market provides comparatively little financing for minerals companies.

There are a number of reasons for this:

• the long-term nature of exploration investments - this is a significant disincentive for private equity investors and private equity managers, particularly if remuneration is generated through performance-based fees; and
• exploration is a high-risk activity - there is a limited number of private equity managers and analysts with the necessary expertise and experience to assess different exploration investment opportunities. This is associated with a decline in the number of financial institutions with in-house expertise and interest in mining.

The Initial Public Offering (IPO) market traditionally has been a significant provider of capital to the minerals exploration industry. However, recent changes in the investment market have meant that:

• a smaller minerals industry has led to reduced trading commissions for stockbroking firms. These firms, therefore, have a reduced incentive to employ dedicated minerals industry analysts;
• investors will generally be unwilling to invest in IPOs if the secondary market for the shares in which they are investing is illiquid; and
• small exploration companies have experienced heightened competition for limited risk capital from other high-risk industries, including information technology, biotechnology and telecommunications.

Exploration companies without current taxable income do not gain the full benefit of immediate deductibility of exploration expenses. This reduces the net present value of exploration projects for these smaller companies and makes it more difficult for them to raise finance.

In addition, those junior exploration companies compete for risk capital against companies that have been given tax and other concessions, such as through innovation investment funds (IIFs), ATO product rulings and Division 10B and 10BA legislation for the film industry. In addition, companies can deduct R&D expenditures at a concessional rate of 125 per cent. There is an argument that exploration is the R&D of the mining industry and should also qualify for the 125 per cent tax deduction.

Lack of access to these fiscal arrangements places investment in minerals exploration at a disadvantage compared to these other ‘high-risk’ industries, presenting an impediment to capital raising by the industry.

According to those raising capital in the market, from the proceeds of an average IPO of about $4 million, acreage selection and acquisition costs, pre-listing and listing costs can account for as much as $750,000 to $1 million. Operating and compliance costs can account for up to $500,000 a year. These costs can represent a large proportion of the funds raised for exploration and limits the amount available for exploration (reducing the return on the funds invested).

The underlying case for government intervention to facilitate access to finance in the mineral exploration sector depends on whether the market is delivering the appropriate investment in exploration, that is, is there evidence of market failure? The case for government action, and the type of action recommended, depends on the demonstrated level of market failure and where it originates.

There are three broad causes of market failure; two of which: failure to recognise the benefits of exploration and structural issues, have been referred to in the introduction. The third relates specifically to government generated market bias in access to finance.

The Commonwealth Government has a range of policies and programs in place to assist aspects of the small venture capital market, including: the Innovation Investment Fund (IIF); the Renewable Energy Equity Fund (REEF); the Pooled Development Fund (PDF); the R&D Start Program; and the R&D Tax Concession. In addition, there is a tax incentive package available for the Australian film industry, providing a special tax deduction under Division 10BA of the Income Tax Assessment Act 1936.

The overall impact of these policies and fiscal arrangements is a potential crowding out of investment in minerals exploration in favour of other tax preferred investment destinations. While these programs may, individually, meet legitimate goals and correct specific market failures, their crowding out impact may reduce mineral exploration activity below its optimal level from an economy-wide perspective, resulting in an inefficient outcome, a regulation-induced market failure.

In addition, these policies and fiscal arrangements provide a precedent, in that the Government already recognises the impediments faced by some industries in raising external capital. Mineral exploration faces similar impediments and thus consideration of appropriate Government responses is warranted.

The inability of companies with insufficient taxable income (junior companies) to obtain immediate deductibility of exploration expenditure represents an impediment to those companies increasing their exploration activities. The primary effect therefore is to introduce a tax-related distortion against companies that do not have taxable income in favour of those that do.

Options for government intervention are designed to stimulate an increased level of minerals exploration in Australia rather than elsewhere. If some or all of these options were implemented, then improved access to finance would result, particularly for junior companies.

Flow through shares – (Recommendation 5)

In effect, this arrangement provides for the explorer to forego a deduction for exploration expenses and transfer it to an investor. The outcome of such a fiscal arrangement is that the after-tax cost of the equity investment is reduced, thereby encouraging the investment community to increase their investment in exploration companies.

Flow-through shares have the potential to address a number of the impediments that the current taxation system imposes on minerals exploration in Australia. These include:

• flow-through shares provide a way to address market failures that inhibit the efficient flow of venture capital to junior exploration companies;
• a system of flow-through shares takes account of flow on benefits of exploration to other explorers by allowing investors to potentially gain a tax deduction in excess of the company tax rate;
• the introduction of flow-through shares does not raise major revenue implications for Government because this is a timing issue (in terms of the "wash out" of tax effects):

It is recognised that any investment incentive must include safeguards to protect the revenue from any potential abuse whilst also demonstrating community value in the form of increased investment in exploration.

It is important that the exploration expenditure is not inflated. The deduction to the investor in the form of transferred expenditure must meet the definition of exploration as currently exists in the Income Tax Assessment Act. Recognising that costs of an administrative nature are incurred in maintaining an entity carried on for the purpose of exploration activities, it is further proposed that a deduction is available for these costs to the investor.

As an integrity measure it is envisaged that the entitlement would only apply to offers which are subject to the provisions of the Corporations Law. As a further integrity measure, there would be a requirement that any offer document includes a binding undertaking by the company to expend the funds raised on exploration activities. The verification of the actual expenditure and thus the actual deduction would be by a registered company auditor at the conclusion of each year.

It is suggested that the proposal be subject to an independent review after four years by Industry and Government to ensure the proposal is meeting the objective of encouraging exploration activity. As part of the review process, it may be appropriate to suggest a sunset mechanism to the extent that the proposal is not meeting its objectives.

However, it takes an average of seven years from discovery for the average gold mine to come into production and longer for a base metal mine and so a high level of patience and resolve is required before a worthwhile benefit for the Industry and the Nation's economy is realised.

Accelerated uplift for Greenfields Exploration at 125% - (Recommendation 6)

Research and development expenditures may be deducted at 125% and 175% in some cases. This concession recognises the economic externalities associated with research and development and is designed to address the under investment in activities that generate positive externalities.

It is widely recognised that exploration activities also generate positive externalities and there is an argument for considering exploration in a similar way to research and development. This would eliminate an asymmetry in the tax system.

Allowing exploration companies to deduct exploration expenses at 125% would remove a disadvantage that these companies currently face in the competition for high risk investment capital with other small companies engaged in research and development activities.

It is considered that the provision should apply to all greenfields exploration, regardless of the size of the company conducting it.

To arrive at an accepted definition of "Greenfields" is difficult and it is suggested that it be done through agreement between the relevant Commonwealth and State Ministers and consultation with representatives of industry.

Native Title costs – (Recommendation 7)

Currently, there is an anomaly whereby the deductibility of certain expenditure associated with resolving Native Title issues is not deductible under the Uniform Capital Allowance scheme. This is the so-called "black hole" expenditure in the taxation system and has the effect of increasing business costs. It diminishes the government’s policy of resolving Native Title issues and remains a deterrent, particularly for junior companies, to be involved in Native Title resolution.

Secondary measures which would also meet the principal objective, include a system of tradeable tax credits, taxation rebates and a targeted fund for greenfield exploration, based on the current Innovation Investment Fund program.

Exploration is a destination for highly specialised investment. Institutions have generally been reluctant to commit resources to assessing highly specialised investment opportunities outside of their mainstream investments. Opportunities are likely to be small in size and, where fees are a function of the volume of funds under management, a critical mass is required to justify the resources (fund managers) required for managing the fund.

Therefore, support to the IPO market would be provided via a fund that is dedicated to investing in the IPOs of junior exploration companies.

Support should target the shortcomings in the IPO market:

• current tax incentives for the provision of capital to smaller high risk companies operate primarily through the private equity market and have limited effect on the IPO market; and
• the IPO market has limited access to institutional investors.

The chief design feature of an IPO fund should be the remuneration of the fund management firm. This has to be sufficient to attract capable fund managers and structured so as to provide proper incentives for the managers to market the fund to institutions and do a good job at filtering good from bad investment opportunities.

Support could be provided in the form of subsidised management fees, as well as PDF-type tax concessions. Eligibility would be similar to that for an exploration venture capital fund except that the companies may be listed.

A tax rebate scheme may apply to all tax deductible business expenses related to exploration or it may be restricted to qualifying exploration expenditures. If the scheme applies to all tax deductible business expenses, eligible companies that incur a tax loss receive a cash payment from the government equal to the company tax rate times the tax loss. If the scheme is restricted to exploration expenditures, companies that incur a tax loss receive a cash payment from the government equal to the company tax rate times the excess of exploration expenses over other net taxable income. Payment is received in the year that the expenses are incurred.

A rebate scheme should apply only to companies whose business activities characteristically lead to an expected and systematic series of losses before positive cash flows are generated. A rebate scheme should not extend beyond expenses incurred in exploration activities.

Divisions 10B and 10BA provide tax concessions for investors in films produced in Australia. As with other Product Rulings, deductions are granted to individual investors on the basis that they are considered to be pursuing the business activity.

This is a flow-through tax mechanism. Suitably designed and applied to the exploration industry, this would achieve the same ends as flow-through shares.

A system of trade in these tax credits would enable junior exploration companies to sell tax credits to other companies with sufficient company income tax to utilise those deductions. Such an approach would enable junior exploration companies to gain immediate access to those tax deductions.

Of all of the options considered, there were three that were regarded as the most appropriate to boost exploration, particularly greenfields exploration. Tax asymmetries and "crowding out" by Government initiatives in other investment schemes have contributed to market failures. The significant role played by junior companies in discoveries is such that their needs were focussed on. Their reliance on the equity market meant that investors have to be attracted to this sector.

The first recommended action by the Commonwealth Government is for the introduction of a flow through share scheme, which addresses the inability of companies with insufficient taxable income to benefit from immediate deductibility of exploration and related expenses. Further incentive is proposed by applying an uplift factor of 150% of eligible expenditure. Evidence from Canada suggests that this added incentive is needed to have the desired effect. To offset any perceived undue benefit, the cost base for the acquisition of shares is set to zero for Capital Gains Tax considerations. A system of integrity measures would be instituted as part of the administrative measures to ensure that the scheme is used for the purposes it was intended.

Because greenfields exploration is high risk endeavour, often using new techniques and concepts, an incentive is needed to increase the amount of exploration funding devoted to this activity, which is of national importance. The recommended action is for a tax deduction uplift factor of 125% of eligible greenfields exploration expenditure. This would not apply to exploration expenditure which would be the subject of a flow though share scheme. Companies which do not intend, or are unable, to use a flow through share scheme, would be able to gain the tax benefit of this provision.

The inability to deduct all costs associated with Native Title requirements has the effect of increasing business costs, diminishing the government’s policy of resolving Native Title issues and remaining a deterrent, particularly for junior companies, to be involved in Native Title resolution. Greenfields exploration is particularly affected by this feature. The Government should remove this anomaly.

Other proposals had support but were considered to be of lesser merit to the three recommended for Government action. They included other mechanisms to address the tax asymmetry of the non-deductibility of exploration expenditure and were the trading of tax credits under a suitable administrative regime and a system of tax rebates from the Commonwealth Government. To address the market failure associated with the Government support of investment schemes in other sectors, a targeted fund for greenfields exploration, based on the IIF program is proposed for consideration.

Recommendation 8 - The Commonwealth, in partnership with the States and Northern Territory, fund a major pre-competitive geoscience survey program to achieve complete national coverage to modern standards of basic geoscience datasets. Expenditure on this program at $25 million per annum is recommended to complete the coverage by 2014.

Recommendation 9 -The Commonwealth, the States, Northern Territory, and industry cooperatively develop national standards for the acquisition, digital conversion, storage, manipulation and online retrieval of all exploration related data, including government generated pre-competitive geoscience datasets and industry-generated exploration data.

Access to high quality pre-competitive geoscience information is vital for successful mineral exploration and a review of this information was undertaken to identify the key pre-competitive geoscience information issues. The recommendations considered to be of highest priority, for the stimulation of the minerals exploration industry are those outlined above.

In reference to recommendation 5, the importance of modern, high quality, digital pre-competitive fundamental geoscientific data to exploration has been identified. However, the present coverage is incomplete and patchy, varying considerably across jurisdictions. In general the coverage of basic modern information is weakest in the larger states of WA and Qld: these states together comprise nearly 75% of all mineral exploration in Australia.

Modern exploration uses a multi-disciplinary approach and requires access to a wide range of data, primarily in digital form. Industry attaches greatest importance to fundamental geophysical, geological, geochemical, mineral occurrence and topographic data in the first instance. Basic geological information is fundamental to the assessment of prospectivity and area selection. Interpretations and other value-added information, although potentially useful, are less important and must be based on high-quality fundamental data. Industry also attaches very high importance to ready access to the results of past exploration through the company reports submitted to the State/NT mines departments.

In particular, industry attaches priority to the following types of pre-competitive geoscience information:

• Geophysical data, especially high resolution aeromagnetic and radiometric data, gravity data and, to a lesser extent, airborne gravity gradiometry data, in digital format;
• Digital maps of high quality and accuracy especially geological maps but also topographic, cadastral, metallogenic, and regolith maps at 1:100 000 and 1:250 000 in particular, and more detailed scales;
• Other digital datasets including historical exploration data with drill hole information, geochronology, regional multi-element geochemistry including regolith and soil samples, bore water analyses, in a variety of formats, with the associated metadata;
• Indexes of available digital data and maps;
• GIS packages; and
• Reports and explanatory notes.

The combination of new airborne geophysical datasets with stratigraphic drilling results and geochemical, geological and metallogenic data, was seen as particularly attractive in significantly lowering the exploration risk in frontier areas.

The increasing need for continent-wide seamless datasets requires systematic collection and storage of digital databases of data to defined standards.

An audit of the major data sets reveals majors gaps in coverage, including large areas of significant mineral potential.

Airborne Magnetic and Radiometric Surveys – Regional coverage of modern semi-detailed airborne magnetic (and gamma-ray spectrometric data) have been shown to strongly influence mineral exploration and result in uptake of new exploration title, both in greenfields and in proven mineral provinces where such data did not previously exist. Regional coverage with modern airborne magnetic data of areas of high prospectivity is seen as a key strategy in ensuring Australia retains its present competitive advantage in the quality and comprehensiveness of modern geoscience datasets to attract exploration investment. However, the regional aeromagnetic coverage of the continent completed by BMR/AGSO is inadequate for modern exploration. Coverage by modern surveys flown at £ 500 m line spacing and <80 m altitude conducted by the Commonwealth and States/NT in the past 10 years is incomplete. Only 53% of the continent is covered at this basic specification with large areas of prospective terranes in WA and Qld especially remaining to the flown.

Rates of acquisition of new airborne geophysical data have fallen and in 2002 were less than that at the start of the NGMA program in 1991 and well below the average for the last 10 years of ~900,000 line km. A major boost to acquisition rates is required to achieve complete continent-wide coverage at a basic standard of £ 500 m line spacing and 80 m altitude with particular emphasis in WA and Qld.

Gravity- There is increasing demand for semi-detailed gravity data at the province and district scale. Coverage is variable across the continent with 44% of the continent covered only by gravity data with the basic 11 km station spacing. Only ~22% of the continent is covered by gravity readings with a station spacing less than 4 km apart. A major program is needed to meet the demands from industry for a basic continent-wide coverage of gravity data with 4 km station spacing or better.

Geological Maps - Geological maps at 1:250,000 and 1:100,000 scale continue to be the basic geological information base, at the national and state level. Maps older than 20 years are considered by industry to be sub-standard because of advances in mapping technologies and knowledge, and deficiencies in the topographic base map (locational inaccuracies, changes in infrastructure details etc). Only 34% of the country's 1:250 000 geological maps meet this standard with many areas covered only by first edition geological maps more than 20 years old.

Geochemical Maps - Regional multi-element geochemical maps and datasets of regolith material have proved useful in both providing a regional geochemical framework (baseline) for more detailed exploration and in identifying regional anomalies of direct interest to exploration companies. However, there is only very limited coverage of geochemical maps and datasets, despite their value in providing direct indications of mineralised environments.

In reference to recommendation 6, the rapid adoption by both industry and government of digital technologies has resulted in a dramatic increase in the demand for high quality pre-competitive digital information. The Internet is the medium of choice by industry for the access and delivery of geoscientific information. However, industry has identified significant difficulties exist in gaining access to pre-competitive geoscience information. The information is commonly incomplete, fragmented, and difficult to search and locate, with inadequate information management systems and structures. There is a lack of nationwide standards for electronic geoscience information and data delivery leading to inefficiencies and higher costs incurred by the industry and other users of the information. An agreed access standard for information and data for electronic service delivery is needed by the Commonwealth and States/NT.

In particular the following, were identified as key issues regarding access to geoscience information:

• There is a need for a comprehensive national data directory

• data may be available but is difficult to find;

• A national approach is necessary for the management of fundamental pre-competitive geoscience information

• Jurisdictional boundaries are perceived as barriers to exploration as they result in inefficiency and unnecessarily high costs of access by users;
• A greater level of coordination between the Commonwealth and States/NT agencies is needed to ensure greater commonality in the types, structures and standards of data in fundamental datasets such as geology, geochemistry, mineral occurrences, topographic, and aeromagnetic, gamma-ray and gravity data.

• Access to precompetitive geoscience information needs to be improved and streamlined through greater use of a common national geoscience portal that links all sources of fundamental geoscience and land and access-related information.

• Use of a portal would reduce duplication between the States/NT and the Commonwealth, and greatly increases the efficiency of mineral explorers;
• The profiles of the Australian Governments Geoscience portal and the Australian Spatial Data Directory need to be raised.

• Effective data management, including incorporation of comprehensive and accurate metadata relating to the quality and reliability of the information, is necessary to improve access to information;
• Data needs to be accessible in standardised formats, in both primary and derivative forms;
• Establishment of a national GIS database would significantly reduce access issues, including research theses, government datasets, company reports, metadata;
• There is a need for nationwide digital standards for the submittal of exploration data by companies to government, and increased efforts are needed by State/NT mines departments to ensure full reporting and submission of exploration data;
• There is a need to capture and archive mine information as well as exploration data, particularly drill hole information;
• There is a need for government to compile primary drill hole information from all sources and make it available in digital format.

In addition, industry perceived the availability of integrated datasets to be an incentive for mineral exploration. Such data should include:

• Geophysical, geological, geochemical, metallogenic and geochronology datasets and maps and associated metadata;
• Historical exploration data including open file company reports, assay results, drill-hole information, digital core logs and photographs, work programs; and
• Native Title and other land use information such as pastoral leases, environmentally sensitive areas, cultural heritage sites.

These data should be available both in linked on-line databases such as the ASDD but also as regional prospectivity packages prepared especially for under-explored but prospective mineral provinces. The combination of new airborne geophysical datasets with stratigraphic drilling results and geochemical, geological and metallogenic data, was seen as particularly attractive in significantly lowering the exploration risk in frontier areas.

Recommendation 10 - The Commonwealth Government launch and support a "50 early career geoscientist" scheme for new graduates and doctorates, to be rotated between government research agencies, industry and small to medium enterprises (SMEs). Cost estimated at $1 million per annum.

Recommendation 11 - Increase public and private sector investment in R&D in new technologies for the discovery of mineral deposits in Australia, building on the existing infrastructure for R&D collaboration within the industry. Additional expenditure of $20 million per annum is recommended to complete the R&D program by 2008

Innovation is one of the driving fundamentals of exploration. It promotes the discovery of new technologies or approaches that in turn allows explorers to uncover previously hidden deposits.

Innovation itself is driven by intellectual endeavour which means that, although hard to quantify in dollars and cents, the human dimension of the exploration industry is perhaps its most valuable form of capital. Indeed, the exploration industry’s future will be shaped considerably by its ability to ‘make a difference’ at a personal and scientific level.

The notion of making a difference is implicit at a number of levels. At grass roots, the industry needs to show up-coming generations of bright students that a career within exploration can make a positive and sustainable difference when viewed from a triple bottom line perspective. The industry itself needs to also show it can make a difference by value-adding to its human capital, making it an employer of choice. And across governments and industry, there also needs to be an understanding that making a difference to the standard of education and training will ultimately translate into technological breakthroughs which will lead to enormous long-term benefits for resource development.

The first specific pillar upon which a successful exploration industry can be built is education and training. The future supply of high-quality graduates is an emerging long-term issue for the industry. Over the past three years, there has been a 30% drop in the number of Honours students and there are indications that enrolments in Masters degrees will drop by 20% from 2003-2004. Similarly, PhD completions are projected to decline from a peak of more than 120 in 2001 to fewer than 50 in 2005. These declines have been a result of a number of factors including a lack of coordination and reduction in earth science courses, uncertainty about career and employment prospects within the industry and also a public failure to recognise the potential to add positively to the drive for sustainability from within the industry.

PhD programs for exploration would benefit by close involvement with government research agencies with strong exploration research activities (e.g., CSIRO, Geoscience Australia). It is proposed that a "50 early career geoscientist" scheme be implemented, which would provide opportunities for up to 50 graduate and post-graduate students to be rotated between research agencies, industry and SMEs. It is estimated that the cost to government would be $1 million per annum.

This scheme is related to the Federation of Australian Scientific and Technological Societies’ (FASTS) proposal for a "100 post-doc" scheme for the science and technology sector which is designed to encourage both local and multi-national companies working in Australia to increase their investment in R&D and boost Australia’s record in BERD performance. However, the "50 early career geoscientist" scheme is targeted specifically to the exploration industry. It would lead to rotation in and out of our research agencies - a valuable achievement in itself, and a powerful catalyst to collaboration. In addition, it would:

• Provide a buffer during down times in the industry so that key people would not leave the industry;
• Encourage collaboration and relationship-building between research groups and industry that would be carried through time;
• Cater to the needs of small and medium enterprises (SMEs), who would employ the early career geoscientist at the most appropriate times during the business cycle. CSIRO/GA would fund the positions at other times;
• Allow selected individuals to work closely with industry and SMEs whilst at GA, CSIRO, or universities) and, most importantly;
• Provide an avenue for new generations of geoscientists to apply their knowledge to the benefit of the exploration industry and also highlight the exciting career prospects available within the sector.

In summary, such a scheme would boost the R&D effort applied to industry problems, improve the skill base and experience of geoscientists and explorers entering the workforce, and offer the advantage of counteracting the cyclical employment demand of the industry.

To complement this action the SLG also notes that the current funding model does not provide sufficient positive incentives for universities to support/focus on geoscience. Under the current funding arrangements, universities appear to be more willing to adequately support disciplines such as IT which attract higher numbers of students, regardless of national priorities or labour market needs.   It is recommended that the Commonwealth move to a funding model that gives direct recognition to the costs and national significance of geoscience.  This problem would be addressed to a large extent by the "variable rate learning entitlement" model proposed in the Review of Higher Education. 

As the school system has a fundamental influence on career choices, it is important that the curricula should be modified to portray Earth science as technologically advanced and highly relevant to the modern world.

The future success of the mineral exploration industry is dependent on research and development (R&D) to develop new exploration technologies or methods. To date, Australia has been a recognised global leader in this field through R&D conducted by both companies and Government agencies, but R&D into exploration technologies and methods has been declining as the minerals industry has undergone fundamental structural changes since the mid 1990s.   

Done well, and properly expedited, R&D leads to the discovery of ore-bodies and contributes to the nation's economic development. For example, the application by the exploration industry of new sampling methodologies derived from research into the geochemistry of weathered materials contributed to a dramatic increase in the discovery of gold deposits in Australia from the mid-1980s. As a result, Australia now ranks as the world's third largest gold producer, with gold exports totalling A$4.9 billion annually.

Australia continues to demonstrate outstanding potential for the discovery of new mineral deposits, but exploration for these is confronted by challenges.  Most new discoveries are likely to be made under cover and at depth, or in previously neglected or poorly examined areas, where current exploration techniques are either not effective or not cost-effective. Sufficient R&D funding is essential for timely solutions.

There is an urgent need to expedite outcomes from existing R&D projects, and to develop new R&D projects, in the following major areas:

1) The cost-effective and high-resolution characterisation of subsurface features in areas of deep cover will involve the development and deployment of advanced geophysical techniques including:

• The next generation of airborne and ground-based geophysical systems (magnetic, electromagnetic, gravity and seismic) for imaging bedrock features, including ore-bodies, in the upper 1 km of the Earth's crust.
• New airborne and ground-based geophysical methods (including radar and acoustic methods) for imaging major horizons within the weathered rock mass and the overlying transported cover.
• Advanced data processing techniques for translating a combination of geophysical signatures into geologically realistic models of the subsurface environment

2) Significant cost reductions in exploration may be achieved through the outcomes of R&D directed towards the development of:

• Improved targeting methods for major ore-bodies.
• New techniques that enable explorationists to reliably distinguish anomalies associated with potentially economic mineralisation from spurious anomalies.
• Advanced methods for the gathering and interpretation of high-quality data (geochemical, mineralogical, lithological and geophysical) from drilling programs.
• Cheaper exploration drilling technologies.  

3) The development of new exploration methods designed to locate buried mineralisation, including:

• As yet undiscovered mineralisation within existing mining districts, based on the known characteristics of mineralisation in other parts of these districts.
• New styles of mineralisation within existing mining districts, based on the known characteristics and geological associations of mineralisation in Australia and around the globe.  
• New potential mining districts, based on an improved understanding of the critical parameters involved during ore-body formation.

4) The development of the next generation of computer-based enabling technologies for the:

• Delivery, manipulation and integration of disparate, complex geoscientific datasets over a range of scales and formats.
• Advanced processing, modelling and visualisation tools.

Current funding levels for national priority pre-competitive strategic R&D projects are only sufficient for the delivery of incremental gains in the medium-term. In order to make a difference to the exploration industry within a realistic timeframe, it is necessary to increase expenditure on strategic R&D projects by A$20 million per annum over a minimum of 5 years. The R&D funds should be allocated to the universities and associated research centres, CSIRO, Geoscience Australia and the State / Territory Geological Surveys. The work will be done in collaboration with the CRCs and private sector consulting and contracting organisations. The latter organisations will play an important role in the commercialisation of some of the R&D technology outcomes. The outcomes of the R&D programs should be made available to all sectors of the industry, which should be encouraged to participate in the management and implementation of the R&D programs. Wherever feasible, it would be desirable for industry to co-fund some R&D projects.