Exploration drilling FLOW-THROUGH UNCERTAINTY LINGERS

Many of Canada’s drill manufacturers experienced record sales last year, but fears are growing among them that the current exploration boom may soon become a bust. It all depends on whether new drills will continue to be in demand after Finance Minister Michael Wilson phases out the earned depletion portion of the flow-through share tax incentive. (By 1990, the total writeoff will be reduced to one dollar from the current $1.33 for every dollar invested in Canadian mineral exploration.) For many drill manufacturers, which earn their bread and butter from exploration activity, the forecast is cloudy. “If earned depletion is cut off, then it would be impossible to finance a lot of the small contracts,” says Howard Erickson, vice-president, finance, for jks Boyles. “As a result, there will probably be a lot of idle drills sitting around. And if exploration ever starts up again, the contracts are obviously going to go to the used drill market instead of the new market, which is us. That means layoffs.”

He adds that the phase-out would have an adverse effect on the Canadian exploration business in general. “If a drill is not drilling, then the various drill accessories — rods, bits, etc. — are not in place either. So its not only the drill machine that would be in jeopardy — it’s the whole package.”

Jks Boyles has written letters to both the federal and Ontario governments in an attempt to persuade Ottawa to reverse its decision. It has also written to the Canadian Save Flow-through Committee, explaining that its employment has almost doubled as a result of the popular tax incentive. (The committee, based in Kirkland Lake, Ont., has spent the past four months lobbying Ottawa for the retention of earned depletion.)

R. H. (Bob) Wolfenden, sales representative for Craelius, says the flow- through dollars raised in 1987 contributed significantly to Craelius’ sales of drills.

“Last year was a very, very good year for just about everybody (in the drill manufacturing and distribution business). But the year coming up may be much more difficult, depending on what happens to flow-through. The phase-out of earned depletion could have quite a negative impact on drill sales.”