Flow Through Shares

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Flow Through Shares

• No room for policy complacency on exploration

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Outline of Presentation

• Defining Flow Through Shares
• Industry working with Government
• Impact of GFC on junior explorers
• Model Stimulatory impacts of FTS
• Broader importance of exploration for a
  sustainable mining sector

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Flow Through Shares Rectifying the tax system

• The intention of a Flow Through Shares (FTS)
  scheme is rectify a tax distortion for junior
  exploration companies
• There is an existing tax deduction for
  exploration
• Junior explorers generally cannot benefit from
  this deduction
• An FTS would enable explorers to pass this
  deduction on to shareholders

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A snapshot of the junior exploration sector

• Junior exploration companies
• Market cap of less than AUD 200
• Predominantly involved in exploration
• Are responsible for most new discoveries

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Government support for an industry backed model

• The ALP election commitment to implement a FTS
  during its first term in 2007
• Government invited industry to put forward its
  preferred model
• Industry submitted Exploration Tax Credit (ETC)
  model in late 2008
• Under the ETC model, exploration expenditure
  creates a tax credit companies can then pass the
  ETC on to shareholders

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FTS in a constrained capital market

• The Federal Government has yet to make good on
  its promise
• Junior exploration companies continually raise
  money to fund their programs.
• It has estimated that without fresh funding, less
  than half of all junior exploration companies
  will survive the next twelve months

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Modeled stimulatory Impacts of an FTS Scheme

• Over three years an FTS would deliver
• 4,196 new jobs
• 114.4m in additional Gross Domestic Product
• 191.2m in additional real private consumption
• 965.1m in additional real investment
• The cost to government would be approximately
  130 million per annum

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Discovery the bigger economic picture

• The study did not attempt to model the flow-on
  benefits of discovery, which is the real economic
  prize flowing from exploration
• Recent trend data has shown a decline our share
  of world exploration spend, as well as our
  national minerals inventory

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Australias overall decline in share of world
exploration budget

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Australias declining minerals inventory..
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Message to GovernmentDo not take mining riches
for granted

• A further decline in exploration and discovery
  will result in Australia losing market share in
  the mining industry
• The opening up of resource rich countries with
  higher quality deposits leaves no room for
  complacency
• Strong incentives for exploration are needed

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Exploration is analogous to RD

• Exploration is similar to RD
• Assumed social and economic benefit for society
  has led to significant taxation incentives being
  provided for RD
• A similar level of support should be provided for
  exploration

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WHAT YOU CAN DO

• FTS advocacy kit at www.ausimm.com