Prospectors protest CEIP cuts

While they are resigned to life without the Canadian Exploration Incentive Program (CEIP), junior mining executives are planning a campaign to heighten public awareness of the impact that the federal government’s decision to cancel the program could have on the industry. After meeting in Ottawa this week with officials in the departments of Energy, Mines and Resources and the Ministry of Finance (EMR), spokesmen for the Prospectors and Developers Association of Canada (PDAC) say a publicity campaign may be one of the few alternatives left open to them.

Robert Parsons, who heads the tax committee of the PDAC in Toronto, said he attempted to discuss the immediate effect of the CEIP cancellation on existing financing arrangements.

“But the people we met with at EMR didn’t seem to want to talk about anything,” said Parsons who claims to have been “summarily dismissed” from EMR’s offices along with PDAC President Robert Ginn and Vice-President Fenton Scott.

“Our next move is to publicize our position as much as possible and make as many people as we can aware of the seriousness of the situation,” said Parsons.

The publicity campaign will take the form of an open letter to Prime Minister Brian Mulroney, Finance Minister Michael Wilson and EMR Minister Jake Epp. The letter is scheduled to be published in several newspapers, including The Northern Miner.

Andrews said he will also be contacting representatives of the various mining associations across the country, legislative assembly members and government critics.

He and other officials in the exploration community question why the government didn’t provide the six months’ advance notice it promised before dropping CEIP in the recent budget.

While companies can still claim until next March for expenses incurred under flow-through agreements filed before Feb. 20, the sudden cancellation caught many by surprise.

“We think that the elimination of CEIP at a time when exploration is running so low is a contradiction of what the government was promising,” said Dennis Prince, president of the PDAC’s Porcupine, Ont., section. “Lots of guys are going to be sucking wind for money this year,” added Stephen McIntyre, president of Toronto-based Timmins Nickel.

However, many junior mining representatives believe that a government committed to reducing the burgeoning deficit will not change its mind and that the junior exploration sector must look at alternative financing sources to survive.

“No amount of complaining will bring CEIP back,” said Andrews. “But because the loss of CEIP has effectively made flow-through shares unmarketable, we are also going to go after an amendment to the adjusted cost base rule.”

Under the current income tax system, investors who buy flow- through shares are liable to a capital gains tax on the proceeds of the sale of those shares because their costs are deemed to be zero. “What we are saying is that the capital gain should be measured (or adjusted) to reflect the after-tax cost of the share,” said Parsons.

For example, an investor who pays $1 for a flow-through share and then realizes a tax savings of 45cents is still out of pocket to the tune of 55cents. If the investor later sells the share for 80cents, the PDAC says he should be subject to a capital gains on only 25cents because of the after- tax cost of the investment. Currently, he would be subject to capital gains tax on 80cents as though the share had no purchase value at all.

PDAC representatives have already raised the issue with officials in the finance Department on two occasions — back in 1987 and last November. “We think they didn’t go for it because the adjusted cost base rule combined with CEIP would have made flow-through shares too rich,” said Parsons.

“The fact that CEIP is out of the way should make the system more attractive to finance,” he said.