The Minerals Council of Australia (MCA) is urging to keep the capital gains tax (CGT) discount for junior explorers to secure the nation’s critical minerals future.
Earlier this year, the Australian Government proposed changes to CGT for explorers, which will adversely impact the ability of these companies to raise funds from individual investors for much-needed greenfields mineral exploration.
Greenfields exploration is the search for new mineral deposits in areas where no deposits have previously been discovered or developed. On average, only one in every 100 exploration projects pass a final investment decision to be developed into a mine.
MCA reports that a retail investor in a junior explorer typically receives no income over many years, is subject to high failure rates and, hence, no return on investment, and relies entirely on capital gains if a discovery is made.
The council has calculated, as part of its submission to the Senate Economics Legislation Committee, that under the proposed changes, a shareholder on a marginal tax rate of 37% who invests $10,000 in shares and holds for five years without receiving any dividends or other cashflow before receiving a capital gain of $20,000 would receive around $16,300 in post-tax returns with the 50% discount.
However, a shareholder would only receive about $13,064 under the proposed CGT changes, a reduction in the return on investment of 19%.
The proposed changes to CGT risks further suppressing exploration activity at a time when greenfields spending — as a share of total exploration spending — is declining in Australia from roughly one-third over recent years to a quarter in FY2025.
“Crippling our junior explorers by increasing CGT would undermine the development of our critical minerals sector just when the world is demanding stronger supply chains and greater strategic resilience in minerals supply,” the MCA says.
The MCA is supporting measures that de-risk early-stage exploration, maintain investor confidence, and sustain the discovery pipeline needed to underpin future resource projects and national economic growth.
On the basis, the council says investments in early-stage explorers should continue to qualify for continued access to the 50% CGT discount after 30 June 2027 to ensure a more coherent and economically balanced outcome.
Write to Aaliyah Rogan at Mining.com.au
Images: Minerals Council of Australia
