Editorial: Nothing for your thoughts, after rounding

In presenting its budget on March 29, the Canadian government lived up to its reputation of being mining-friendly, even in an age of austerity budgets worldwide. Overall, the relatively healthy state of the Canadian economy gave federal Finance Minister Jim Flaherty room to be gentler with the axe than many had expected.

Mineral explorers came away with smiles as their most precious tax break, the 15% Mineral Exploration Tax Credit (a.k.a. “super flow-through shares”), was extended another year until March 31, 2013. It’s applicable to grassroots exploration costs incurred with Canada, and is widely credited with helping make Canada a world centre for mineral exploration and the number-one destination for exploration dollars for the past decade.

Other goodies for the mining industry include: a renewal of the Major Projects Management Office initiative at a $54-million cost over two years; $14 million set aside to improve consultations with Aboriginal people as mandated under the Canadian Environmental Assessment Act (CEAA); and $400 million earmarked for assisting private-sector investments in early stage risk capital, and to support large-scale venture capital funds led by the private sector.

Of more consequence down the road, the government promised in the budget that it would propose legislation to amend the CEAA and streamline the federal environmental review and permitting processes for major economic projects.

The amendment would improve these processes in two ways, from a miner’s perspective: the federal government would be able to accept a provincial environmental review as its own in order to eliminate duplication of effort, and there would be fixed timelines for project reviews and assessments to avoid long, drawn-out applications.

On the downside for miners, the federal government is phasing out the Mineral Exploration and Development Tax Credit, which is 10% corporate tax credit for pre-production mining expenditures that was first introduced in 2003 to replace the Resource Allowance. Mineral exploration expenses are eligible for a 10% credit in 2012, 5% in 2013 and zero afterwards. There is a 10% credit for development expenses incurred before 2014, but the rate will fall to 7% in 2014, 4% in 2015 and zero afterwards.

For monetary history buffs, the federal budget carries with it a predictable milestone in the lifespan of a fiat currency: the government’s decision to kill the Canadian penny.

The government has told the Royal Canadian Mint to stop manufacturing the penny, which will be withdrawn from circulation in about six months. People can still use the penny for payments and it will retain its value indefinitely. 

The budget states that “the government expects that businesses will apply rounding for cash transactions in a fair and transparent manner.” This rounding would take place not on individual items on a bill, but on the final total. Non-cash sales paid for with cheques, debit and credit cards and other electronic payments will still be settled to the penny.

The government says it has been costing 1.6¢ to make a penny, and the mint has been making 470 million pennies a year in recent years, or 14 pennies per Canadian. Penny mintages peaked at 1.26 billion in 2006, and 35 billion pennies have been produced since 1908, half of them in the last two decades.

The Dominion of Canada first began issuing coins in 1870, and the first Canadian penny was minted in 1876. Canadian pennies made in Canada rather than England first appeared in 1908, when the Ottawa branch of the British Royal Mint opened, though today’s pennies are minted in Winnipeg. The penny’s memorable maple leaf and twig design was created in 1937 by English artist George Edward Kruger Gray.

From 1908 to 1941, the penny was made of 95.5% copper, 3% tin and 1.5% zinc, and from 1942 to 1996 the copper content was bumped up to 98%, with the rest being variable amounts of tin and zinc. The 1997 to 1999 period saw the penny composed of 98.4% zinc with 1.6% copper plating, and from 2000 to the present, the penny has been composed of 94% steel, 1.5% nickel and 4.5% copper plating or copper-plated zinc.

True to the typical trend of inflation, Canadians have also watched the gradual shrinking of the penny’s heft, with a penny weighing 5.67 grams up until 1920, and the modern penny tipping the scales at 2.35 grams.