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Are We On the Verge of an Exploration Boom?

Australia's business leaders think it's time for more mineral exploration.

The South Australian Chamber of Mines and Energy said last week that the nation needs an exploration tax credit scheme to do it.

The Chamber noted that exploration spending in Australia is on the decline. Having fallen from 21% of the global exploration spend in 1996, to just 12% in 2011.

To revitalize the sector, the Chamber is calling on the government to change tax laws. Allowing exploration companies to "flow through" business losses to investors, who can claim them for savings on personal taxes.

Such an arrangement makes a lot of sense for the exploration business, which only spends money and will almost never see revenue against which to claim losses. This type of system has worked well in places like Canada in spurring exploration investment and activity.

The interesting thing is that the Australian mining sector is thinking about exploration at all. That sub-sector has largely fallen out of favour. At a time when even large mining companies are struggling to find investment capital.

But the focus on exploration shows us the undercurrents swirling in the business. As the Chamber notes, "Many people do not realise that the junior sector is critical to resource development, being the ‘engine room’ needed to find the mineral resources upon which the economy is so dependant."

Miners are facing high costs--preventing the development of a lot of marginal projects. And yet they are also staring down depleting reserve bases. One of the only solutions to this "rock and hard place" is exploration. Aimed at discovering new and better deposits that can be developed for at more reasonable capital and operating costs.

Mining executives may not quite be articulating it that way yet. But the events above show that exploration is swimming back into their realm of thought.

There's a good, economic reason for that.

Here's to finding what you don't have,

By. Dave Forest




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