Industry Trend Analysis - Canada: Further Mining Headwinds Despite Tax Credit Extension - MAR 2015
BMI View: Canadian junior miners will continue to face broader market and operational headwinds in the quarters ahead despite the government's recent extension of its mineral exploration tax credit. Subdued mineral prices will put further downward pressure on exploration and development budgets, limiting the impact of the tax credit.
The Canadian government this week confirmed it will extend for one more year its 15% mineral exploration tax credit, a move which will provide some relief for cash-strapped junior miners but ultimately have a limited impact given wider market dynamics. The measure, which will cost the Canadian government USD28mn in lost revenue, has been in place since 2000 and provides a tax credit for investors who purchase flow-through shares of mineral exploration companies. Flow-through shares allow investors to receive a tax deduction, as opposed to the firm itself. Given that many junior firms have little or no revenue, and thus have few if any tax liabilities, the flow-through share structure encourages investment into junior mining firms, providing them with needed capital to engage in exploration and development activities, while conferring tax benefits directly on investors.
Long-Term Price Dynamics To Remain Significant Headwind
|Weaker Prices To Put Further Pressure On Firms|
|Gold - Historic & Forecasted Prices|