MINING & OPINION — Mining towns lobby Ottawa — Reintroduce MEDA

Almost every North American geologist, mining executive and research analyst has one. Some have two or more white-knuckle stories to tell about their ventures into foreign lands. Few, however, are as dramatic as the experiences of two Canadian diamond drillers held hostage for months by Colombian guerrillas.

Small wonder many in the mining industry have come to realize that there’s no safer place than home, and that there is no sense finding mines in exotic places if there is no certainty of being able to keep or mine what is found. And small wonder that efforts are under way to persuade Canadian politicians to stimulate domestic exploration, particularly in remote areas already dependent on resource development, through tax incentives.

One such community, Red Lake, Ont., is spearheading a campaign to reintroduce the mining exploration depletion allowance (MEDA) as it previously related to the Canadian Exploration Expense (CEE), more commonly known as flow-through shares. This tax incentive gave a powerful boost to domestic exploration when it was in place in the 1980s, and small towns such as Red Lake believe it could once again trigger discoveries and generate a significant return on investment for the people of Canada. The community’s efforts are backed by the Prospectors and Developers Association of Canada (PDAC) and the Mining Association of Canada (MAC), as well as by numerous individuals and organizations.

Canadian mining towns are worried by the drop in domestic exploration spending — 1998 spending is expected to total $610 million, compared with almost $1 billion in 1996 — and the concurrent increase in spending in Latin America, Africa and other exotic locales. The community of Red Lake, for example, has noticed that the cornerstone of its local economy, Placer Dome, has executed a major South African mining deal, undertaking US$460 million worth of offshore political risk insurance. Meanwhile, the major has abandoned a newly constructed exploration facility in Red Lake, near the company’s Campbell gold mine.

These mining towns have also noticed that, more often than not, the majors are buying, rather than finding, new deposits in other parts of the world. This means more cutbacks in exploration spending. As a result, the discovery of new deposits is increasingly becoming the responsibility of junior companies. The problem for juniors is that high-risk investment capital for exploration is dwindling as investors move into other sectors with higher returns, such as the much-ballyhooed Internet stocks.

MEDA-enhanced flow-through shares could revive the moribund domestic exploration climate, provided safeguards are in place to ensure that the abuses that occurred in the late 1980s (before the government phased out the program) are not repeated. Fortunately, these safeguards will be in place soon, as Canadian regulators implement recommendations calling for higher standards for disclosure and industry best practices. If necessary, even more stringent controls could be established by government and regulators.

We support the efforts of Red Lake, the PDAC and MAC to lobby government officials to reintroduce MEDA into the flow-through mechanism. This incentive would serve as a much-needed catalyst for domestic exploration and possibly lead to discoveries that would bring jobs and benefits to small towns across this nation.

We have no doubt that, given the choice, every North American geologist who has battled malaria, and every mining executive or contractor who has feared for his safety (and the safety of his employees) in politically unstable jurisdictions, would love to come home. And we have no doubt that communities such as Red Lake would love to have them back.