Policy & Positions Manual
Policy Priority Area - A Vibrant Resource Sector
Using Financial Mechanisms to Develop British Columbia's Mineral Resources (2009)
A more positive investment and regulatory climate that will be conducive to revitalizing the exploration and development of the mineral resources of BC must be created by government at all levels. British Columbia has excellent mineral potential, and a skilled work force which needs to be replaced. Vancouver is a mineral exploration Centre of Excellence.
Challenges in permitting, approvals, land access and land use are long-standing, while aboriginal engagement and consultation have recently emerged as major obstacles to mineral resource development. Ministry divisions responsible for mineral exploration and mining have been unable to meet demands. Over the past two years the mineral exploration community has found increasing variations in timelines and conditions for Notice of Work permits and appropriate approvals across regions of BC. This community has documented examples of extensive delays, inconsistencies in permitting requirements, and delays or inaction due to uncertainties pertaining to referrals and consultations with First Nations.
A common element to many of these challenges is significant under-resourcing of the Ministry relative to the sector’s contribution to the provincial economy when compared to other sectors. Lack of appropriate funding levels results in higher turn-over within the Ministry, with a corresponding reduction in knowledge, experience, efficiency and morale.
Including primary and fabricated metals producers, the minerals and oil and gas sector was responsible for $6.3 billion or 4.2% of BC’s 2007 GDP, while the forest sector at $11.2 billion is responsible for 7.4% of GDP; not quite double.
Yet in 2009/10, the mineral and oil and gas sector divisions of EMPR will have an operating budget of only $73 million and a capital budget of $21.2 million, with a total of 341 employees. The Ministry of Forests and Range has an operating budget of $778 million, a capital budget of $65 million, and 3604 employees outlined in its service plan for the same period.
The forest sector is responsible for a larger share of BC’s GDP, but not by a factor of more than 10 as implied by Ministry funding and staffing levels!
The Chamber believes the Provincial Government needs to increase MEMPR’s budget allocations to a level commensurate with the value of the sector’s economic contribution to the province, with stable funding for staff and infrastructure to optimally support permitting, geoscience, survey work, and exploration and mining activities.
Flow-through share financing has been a successful structure for over 20 years whereby governments have acted as a catalyst to increase the levels of resource property exploration and development in Canada. In 2008, approximately $300 million in flow-through shares were issued by Canadian mining companies, compared to $800 million in 2007. Investors in flow-through share offerings, completed prior to the market meltdown, have experienced losses on both a pre and post-tax basis. Therefore, 2009 is expected to see a significant reduction in flow-through financings relative to 2008, contributing to already worsening exploration activity levels.
By acting as a catalyst to assist mining companies in attracting greater amounts of private market funding at more attractive terms than would otherwise be possible without government support, governments can help encourage mineral exploration activity.
A significant amount of money raised from flow-through financing was not deployed in 2008 while some operating companies were unable to finance brownfield exploration or expansions. This gap could be addressed if the flow-through program was amended to allow this application of flow-through funds to open pit and underground exploration and development at both brownfield and greenfield sites.
THE CHAMBER RECOMMENDS
That the Provincial Government encourage private sector investment in mineral exploration by:
- expanding flow-through eligibility to include both surface and underground greenfield and brownfield exploration and development expenditure on a temporary two-year basis;
- making the super flow-through share program a permanent feature of the tax system or, at a minimum, extend the program for an additional three years. In addition, the Government should implement a temporary increase in the deduction gross-up to 125% for development spending and 150% for exploration spending to flow-through share financing, and increase the BC Mining Flow-Through Share Tax Credit of eligible costs from 20 to 30% (similar to the Budget 2007 measure to increase the mineral exploration tax credit in pine-beetle infested regions)
- working with the Federal Government to expand the definition of exploration under federal Income Tax Act to include spending on or near a closed property; and
- BC has an excellent Mining Exploration Tax Credit (METC) program that provides a 20% refundable tax credit for resource companies through January 2017, and an enhanced rate of 30% for companies exploring areas affected by the mountain pine beetle. We thank the government for its foresight in implementing a long-term tax incentive for companies active in mineral exploration. The BC Mining Flow-Through Share (BC-MFTS) program for investors, however, is set to expire December 31, 2009. The Chamber’s recommendation is to implement this program permanently.
