Explorationists downplay report on Canadian exploration activity

The president of the Prospectors and Developers Association of Canada (PDAC) is downplaying a recent federal government report on the state of mineral exploration in Canada. Robert Ginn says the exploration downturn is national in scope and not confined to specific regions of the country.

The Energy, Mines and Resources Canada (EMR) report sends a clear message to the Canadian mining exploration sector: new tax- based investment incentives are out of the question.

Timiskaming MP John MacDougall says the 40-page document should send a signal to several groups that are trying to get Finance Minister Michael Wilson to re-instate the Canadian Exploration Incentive Program (CEIP) or something similar.

CEIP was chopped from Ottawa’s flow-through-share system early in 1990. Flow-through shares (still available) allow investors in junior-mining companies to deduct 100% of their investment at tax time. CEIP, a grant scheme which could work to the investor’s advantage, was a replacement for a deduction scheme which allowed investors to claim an additional 33 1/3% tax writeoff.

The report, released by MacDougall, suggests mining exploration in Canada has not suffered because of the cancellation of CEIP.

Among other considerations, the report indicates that 1990 will be the third highest year on record for exploration spending in Canada. According to the report, exploration spending peaked in 1988 at about $1.2 billion while total spending for 1990 is expected to reach $750 million.

In addition, it states that the record exploration activity of 1987 and 1988 has not been translated into a significant increase in new mines.

The document, from the office of EMR Deputy Minister Bruce Howe, concludes: “It is difficult to make a strong argument, on the basis of international comparisons, to increase the level of incentives for Canadian mining exploration. This conclusion is reinforced by the fact that Quebec has extra incentives over and above the federal ones, and yet Quebec is one of the hardest hit areas in terms of exploration downturn. This suggests that incentives themselves are not the answer.”

Exploration writeoffs for investors in Quebec, because of provincial government incentives, are 166/9bh/% for projects involving surface work and 133 1/3% for underground exploration efforts.

The report points a finger at the low price of gold, the stock market crash of 1987, losses that investors have recently incurred in the mining exploration business and a lack of new mining discoveries as the main factors in the regional exploration downturn.

However, the document acknowledges that two areas of the country, northeastern Ontario and northwestern Quebec, have been hit hard by a downturn in exploration activity.

“It’s not the type of report I wanted to see,” said MacDougall, parliamentary secretary to EMR minister Jake Epp. “It clearly shows that exploration is alive and well in Canada, but not in my home area which just happens to be northeastern Ontario.”

Ginn argues along similar lines. “We’ve seen plenty of companies in British Columbia and the Maritimes go into a slide or fold altogether,” he said. “It’s not fair to say the downturn is regional. It’s national.”

The report is expected to throw cold water on an effort by mining municipalities in northern Ontario and northwestern Quebec to get Wilson to change the finance department’s mind about additional investor tax incentives.

The group, led by Kirkland Lake, Ont., Mayor Joe Mavrinac, has been gathering support for a meeting this month, not yet scheduled, with Wilson.

The document refers to figures from the Canadian Diamond Drilling Association (CDDA) as indicating 1990 footage is not significantly behind 1989 figures. The EMR document does not indicate what those footages are.

Ginn takes exception to EMR’s use of CDDA figures. “We’ve had some problem with the CDDA figures because they’re misleading. We recognize that and they the (CDDA) recognize that,” he said.

Officials at EMR, Ginn says, have taken the CDDA figures at face value and have not performed any in-depth analysis of the data.

“All the figures and facts we can pin down, like claims staked and assessment work days filed and all those things, are dramatically down,” he said.

Ginn and two other PDAC representatives met recently with EMR officials in an effort to explore alternatives to boost the sagging junior exploration sector.

“We’re really trying to be positive about this,” Ginn said. “But, what they’re driving us to be is political. We know the patient is sick but we don’t have the statistics at our fingertips to prove it.”

Ginn says Ottawa historically has used figures that are questionable.

“Are we going to compare ourselves with Australia or Indonesia?” he asked. “What we really have to look at is that this industry has generated close to $40 billion worth of product over the past couple of years. Are we just going to see that die because we’re not finding new orebodies? That’s what we’re facing.”