Tax breaks give Canada edge

(Note: Dryblower is an Australian-based syndicated column appearing in Australia’s Mining Monthly and on the web site MiningNews.net)

How do you know if there’s a boom happening? Obviously you can listen and hope to hear a loud noise. But in the case of a minerals exploration boom, it is no good listening; it is much easier to look.

And that’s just what Dryblower has done to test a hypothesis that there is indeed a boom in the Canadian exploration industry.

Coming from Australia, where grassroots fossicking remains at an alarmingly low level and there are more exploration geologists driving taxis than kicking rocks, this talk of good times in Canada seemed a bit of an exaggeration.

How, Dryblower pondered, could one country be on fire (especially when it’s covered in snow) and another look like a dried-up prune.

The answer, according to his friends (yes, Dryblower has some — well, two actually, if you count the dog) is that Canada has done two things right: it introduced a tax incentive scheme called the flow-through tax system, which rewards fresh investment with an immediate deduction, and it used that new money to make discoveries.

Diamonds are the hottest property in Canada today, and lots of them. BHP Billiton and Rio Tinto are in production. De Beers is desperate to join them, amidst a steady stream of rumours that it will make an offer for the BHP Billiton-run Ekati mine.

London, the traditional home of mining finance, loves the Canadian story. It is pumping money into the frozen north and having fun with a string of small-listed Canadian stocks — while almost completely ignoring the small Australians, which are one of its traditional playgrounds.

Having heard the stories, listened for the boom, and seen the share price movements, Dryblower decided to use a simple test that proved, or disproved, this talk of a Canadian boom. He used exactly the same technique some economists have been using to prove (or disprove) whether we are in recession, suffering deflation, or worried about interest rates.

The trick is to count the number of times certain key words are used in newspaper, magazine and web-site stories. The more references you find, without testing exactly what’s said, the more the chance that a certain event is happening.

Using a powerful global media search engine (Dryblower’s getting very flash now, isn’t he?), three tests were run. The first question was for the words “Canada” and “diamonds,” the second was for “Canada” and “mining,” and the third was for “Canada” and “exploration.” As a reference, the same questions were asked of Australia plus diamonds, mining and exploration in separate searches.

The results: Over the past 12 months, the words “Canada” and “diamonds” appeared 3,961 times in the same story. The words Canada and mining appeared “20,788” times, and “Canada” and “exploration” appeared 24,233 times.

The Australian comparison was 3,195 for “diamonds” (understandable, as Canada has made a significant number of new discoveries), 32,816 for “mining” (also understandable, as Australia has a substantial number of operating mines), and just 17,782 for “exploration” (far below the Canadian figure of 24,233).

What the exploration word test reveals is that while Canada and Australia both have big mining industries, it is Canada that is having the exploration boom — with almost 50% more references to exploration than Australia. This is a remarkable pointer as to who’s having the most fun in the field, and on the stock market.

Dryblower is sure that Australian mining industry lobbyists will seize on this straightforward test to prove which country is having a boom and use it to argue for a flow-through tax system like the one used in Canada.

If they do, and it helps, best of luck. Just remember that it is known as “The Dryblower System of Measurement for Simpletons” — and that Canberra will never give anyone a tax break.