Editorial: R.I.P., I.T.C.E.

With all the hoopla these days over rising metals prices and Canada’s booming mineral-exploration scene, we think it’s a good time to pause and pay our respects to a federal program that helped this industry get through some of its darkest days at the turn of the millennium.

As we all know, metal prices started a multi-year decline in 1997 in the face of a skyrocketing U.S. dollar. At the same time, investment dollars were rotating out of the minerals sector in search of better returns in high-flying high-tech and pharma stocks, a painful trend that was only exacerbated by the Bre-X Minerals scam.

Mineral exploration spending actually bottomed in Canada in 2000 in real terms, and has been rising ever since. Last year, according to the federal government, mineral exploration spending in Canada totalled about $1.4 billion, up from $1.2 billion in 2004 and $687 million in 2003. In fact, 2005 saw the highest levels of exploration spending in Canada since the heyday of the Mining Exploration Depletion Allowance (MEDA) flow-through-share program in 1987 and 1988. Canada now ranks as the number one destination in the world for mineral-exploration dollars.

While rising commodity prices and favourable capital markets played a strong role in the revival of Canadian mineral exploration, a temporary flow-through-share program instituted in October 2000 by then-federal finance minister Paul Martin threw a critical lifeline to a drowning industry.

Called the Investment Tax Credit for Exploration (ITCE), or the “super” flow-through program, this lifeline was a tax incentive aimed at grassroots mineral exploration in Canada. It was a response to calls for help from exploration and mining companies (especially from the Prospectors and Developers Association of Canada), northern communities, and provincial and territorial governments.

The ITCE was a 15% non-refundable federal tax credit, available only to individual investors in flow-through shares of exploration and mining companies. It was initially proposed for a 3-year period, but was extended in the 2003 and 2004 federal budgets by then-finance minister John Manley. It finally came to an end on Dec. 31, 2005, though issuing corporations are still able to incur eligible expenses until the end of this year.

Also, with the demise of the ITCE, came an end to some provincial tax breaks that were harmonized with the federal program.

The PDAC did ask that the ITCE program be extended a third time, but the request was turned down. Junior explorers were so awash in new cash that they hardly noticed.

But we won’t forget the desperate visitors to our offices in the late 1990s and early 2000s, those stressed-out execs from junior exploration companies on the verge of extinction. The meagre, six-figure sums they were able to muster through ITCE and related provincial programs often allowed their companies to hang on for one more year.

The survivors, and their far-sighted investors who counted on commodities coming back some day, have, for the most part, been able to profit handsomely from the new minerals boom.

While the federal government gave up tens of millions of dollars in revenue during the ITCE’s run, it will surely make back those sums many times over in the form of capital gains taxes and all the other taxes paid out by those mining investors and companies that made it through the toughest times we may ever see in the industry.

The Investment Tax Credit for Exploration was a response to calls for help from exploration and mining companies, northern communities, and provincial and territorial governments.