Mining communities lobby for flow-through

Representatives of mining and assorted other industries in Kirkland Lake, Ont., are mad as hell and they’re not going to take it any more. What they’re mad at is the federal Finance Department’s plan to weaken flow-through share financing for Canadian mineral exploration.

In response, the Save Flow- through Committee was formed about a month ago to help carry the flow-through torch. The actual committee consists of only about 20 men and women, but close to 7,000 people in the Kirkland Lake area are supporters, says Chairman Eveline Kasner. What’s more, a Sudbury branch is in the process of being organized.

In Quebec, the Quebec Prospectors Association has offered its full support to the committee.

It’s all part of an ongoing lobbying effort to persuade Ottawa to reconsider its plans to phase out “mining exploration depletion allowance” (or earned depletion). Fears are growing that such a phase- out, in conjunction with other tax reform proposals, would turn the current exploration boom into a bust.

Earned depletion provides a tax writeoff in excess of the amounts actually spent by individual investors for exploration and development. Since the tax incentive was introduced in 1983, exploration companies, especially the juniors, have succeeded in raising unprecedented amounts of investment dollars. In 1987 alone, it is estimated that more than $900 million in flow- through money was raised. Needless to say, the economies of Canada’s mining communities are benefitting indirectly from today’s high level of exploration activity.

“Flow-through has created an economic boom the likes of which we have never seen in Canadian mining towns,” Kasner tells The Northern Miner. “Three to four years ago, these towns had serious unemployment problems. Now, thanks largely to flow-through, it seems just about everybody has a job. And these are true jobs; they aren’t dependent on government assistance, but, rather, are part of the overall economies which have been steadily improving as a result of flow-through.”

According to figures obtained from the committee, flow-through has injected about $50 million into the economy of Kirkland Lake alone in 1987.

The following exploration-related companies in the Kirkland Lake area have reported considerable gains attributable to flow-through:

Swastika Laboratories (increased staff by 70 workers since 1983, increased business by 60%); Accurassay Laboratories (increased staff by 51, increased business by 700%); Tilden Car & Truck Rental (rentals up 33%, business increased by 28%); Avis Rent-a-Car (auto rentals up 200%, propane up 300%, equipment rentals up 100%); Heath & Sherwood Drilling (increased staff by 91, increased business by 66%); mining contractor Alex MacIntyre and Associates (increased staff by 60, increased business by 65%); and Dynatec Mining (increased staff by 100, increased business by 25%).

Also, the Ontario Ministry of Northern Development and Mines’ mine recorder’s office reports recorded claims are up by 19,200 since 1983, when earned depletion was introduced. Indirect impact

A significant number of non- mining businesses are lobbying for the retention of earned depletion. While the impact of increased exploration on those business is indirect, it is nevertheless very important, Kasner says. Among those she mentions are realtors, plumbers, hardware stores, hotels, building contractors, electricians, fuel distributors, office supplies distributors, restaurants, corner stores and gas stations.

“Without exploration, we cannot find mines,” she stresses. “And without mining, we cannot provide jobs and a stable economy for the people who live in our area (Kirkland Lake). Think back for a moment to the lean years of the 1960s and 70s when virtually no exploration existed. Think back to the friends who left in search of greener pastures elsewhere because they could not make a living here where many of us were born and went to school.” Less generous

Under Finance Minister Michael Wilson’s tax reform package, the actual concept of flow-through will be retained but in a less generous form. Currently, each dollar invested by an individual in Canadian mining exploration provides a tax writeoff of $1.33. The tax reform package calls for the end of that extra 33 cents earned depletion writeoff.

The rate at which depletion can be earned is to be slashed to 16 2/3% from 33 1/3% by July 1, 1988. It would be phased out completely as of Dec 31, 1989. In other words, the total tax writeoff would be cut from the current $1.33 to $1.17 by July 1, 1988, and to a dollar-for-dollar deduction by Jan 1, 1990.

(The Quebec government has plans to keep the 33 1/3% depletion rate in effect until the end of 1989.)

Kasner says the stock market crash of last October means it is doubly important that earned depletion be retained, to ensure flow- through shares remain an attractive investment vehicle.

Among the biggest contributors to the Save Flow-through Committee are: Rene Adams of the Economic Development Commission; Joe Mavrinac, mayor of Kirkland Lake; David Ramsay, mpp for Temiskaming; and John MacDougall, mp for Temiskaming.

Eveline Kasner is the wife of Robert Kasner of the Kasner Group, a mining exploration company based in Kirkland Lake.

The committee is organizing a symposium to be held March 1 at the Holiday Inn in Ottawa, Ont. The themes will be the impact of tax reform and the stock market crash on flow-through shares, and the impact of flow-through shares on regional development. Among the speakers will be government representatives.

qpa President Regis Labeaume says his group plans to be well represented at the March 1 meeting.