Jim Chalmers’ changes to the capital gains tax could have an even bigger impact on the sector than his mentor Wayne Swan’s controversial resources super profits tax, mining executives warn, and could imperil the future of arguably the most important arm of the Australian economy.
There are growing fears that the CGT changes will make it even harder for the hundreds of small exploration companies, or juniors, that call the ASX home to secure funding to hunt for new projects. This in turn would choke the pipeline of new discoveries needed to sustain the sector long term.
The mining industry is lobbying the Treasurer to include junior explorers in any CGT carve-out provisions that the government puts in place for start-ups, setting the stage for the biggest fight between the sector and the government since the super profits tax row of the Rudd era.
Junior resources companies disproportionately rely on retail investors – or mums and dads – for the capital needed to finance their exploration campaigns. Their small size and the high risk of failure mean they are all but ignored by institutional investment funds.
Executives who led some of the biggest Australian mining and exploration success stories this century say they fear for the future of exploration in Australia as a result of the CGT changes.
Under Dr Chalmers’ plans, which replace the 50 per cent CGT discount with a discount linked to the rate of inflation, the tax payable on the shares sold in a company after it makes a major discovery will almost double.
Mining executive Bill Beament, who grew Northern Star Resources from a 5c-a-share minnow into a company that is now the largest gold producer in Australia, said the proposed changes had “completely destroyed” the balance between risk and return for investors in exploration.
“These changes to the CGT will ultimately cut the jugular of the Australian economy,” Mr Beament said.
“I’ve always had this saying: ‘if you don’t drill, you don’t find, if you don’t find, you don’t mine, and if we don’t keep drilling and digging, the economy collapses’.”
Veteran geologist and executive Mark Bennett, whose involvement in multiple nickel and gold projects in Western Australia saw him twice named Australia’s prospector of the year, said the impact of the CGT changes was more unfair than the mining tax proposal from the Rudd era.
“If your intent is to raise revenue as a government from those periods where commodities are really booming and companies are making ridiculous profits, then that seems more reasonable to me than this,” Mr Bennett said.
He said the impact of the CGT changes on the ability of companies at the small end of the market to raise money would not be immediately apparent, but would eventually have a “massive” impact on the economic ecosystem.
“There’ll be less capital available for juniors to explore, there’ll be fewer discoveries, and the better of those discoveries will not be available for the bigger guys up the food chain. There’ll be fewer mines and less of the income generated by those for the rest of the country,” he said, adding: “They are undermining the future.”
Veteran Perth investment banker Liam Twigger – the vice-chair of corporate finance at Argonaut, which helps many of those smaller resources companies raise capital – said the increased CGT obligations would be a massive disincentive for investing in speculative mineral exploration.
“It’s an insanity and it’s going to smash a junior resources sector that is already struggling,” he said.
“It’s just a complete and utter miscalculation by people who’ve never had a real job.
“These people have never had to risk anything, they’ve been in a giant humidity crib being paid by the government, but if you get out on the real street and try and earn a living, and put your house on the line to buy a fish and chip shop or start a mine, you risk all of that, but the government gets half if you get it right and you lose everything if you get it wrong. It’s just wrong. It’s fundamentally flawed.”
Amid a push by the tech sector for start-up companies to be protected from the changes, the resources sector is campaigning for similar provisions for smaller mineral explorers.
The Chamber of Minerals and Energy of Western Australia’s membership is dominated by larger miners with less direct exposure to the changes, but the organisation’s CEO, Aaron Morey, said those members were well aware of the ultimate impact that a drop in exploration activity could have for their longer-term futures.
“Those small explorers, they construct the pipeline projects that eventually become projects that pay billions of dollars in royalties and employ hundreds of thousands of Australians,” he said.
“And if we don’t continue to generate a pipeline of projects, then what you’ll find is that the contribution of the mining sector will diminish over time and there’s no way on earth that anything’s going to replace it with anything like the scale of which it contributes to society.”
He said the CME was engaging with Treasury to press the case for a carve-out for junior explorers as part of any CGT start-up provisions. “We’re focused and determined to ensure that mineral exploration is recognised as being an absolutely critical part of the start-up economy,” he said.
The growing concern about the impact of the CGT changes on the mining industry could turn into another showdown between the sector and the Labor government.
The backlash over the proposed super profits tax put forward by Mr Swan in 2010 ultimately destabilised the government and led to the rolling of prime minister Kevin Rudd.
Speaking at a CME lunch in Perth on Thursday, Dr Chalmers said he was aware of industry concern about the impact of the CGT changes on the exploration sector.
“We take that feedback very seriously. But overwhelmingly, what we’re trying to do is do a better job of recognising the real gains people make, when they make these important investments,” he said.
The Treasurer said his department recognised the “different set of considerations” facing the start-up community and was working with the start-up sector “to see if we can find a way through”.
Ken Brinsden – a former managing director of Pilbara Minerals and Atlas Iron who now leads lithium company PMET Resources – said he had lost count of the number of small shareholders who had told him they had secured their financial futures after investing a portion of their wages into junior exploration companies.
But he said the CGT increase and ongoing bracket creep would make that investment far harder for smaller investors in the future.
Jim Chalmers’ changes to the capital gains tax could have an even bigger impact on the sector than his mentor Wayne Swan’s controversial resources super profits tax, mining executives warn, and could imperil the future of arguably the most important arm of the Australian economy.
There are growing fears that the CGT changes will make it even harder for the hundreds of small exploration companies, or juniors, that call the ASX home to secure funding to hunt for new projects. This in turn would choke the pipeline of new discoveries needed to sustain the sector long term.
The mining industry is lobbying the Treasurer to include junior explorers in any CGT carve-out provisions that the government puts in place for start-ups, setting the stage for the biggest fight between the sector and the government since the super profits tax row of the Rudd era.
Junior resources companies disproportionately rely on retail investors – or mums and dads – for the capital needed to finance their exploration campaigns. Their small size and the high risk of failure mean they are all but ignored by institutional investment funds.
Executives who led some of the biggest Australian mining and exploration success stories this century say they fear for the future of exploration in Australia as a result of the CGT changes.
Under Dr Chalmers’ plans, which replace the 50 per cent CGT discount with a discount linked to the rate of inflation, the tax payable on the shares sold in a company after it makes a major discovery will almost double.
Mining executive Bill Beament, who grew Northern Star Resources from a 5c-a-share minnow into a company that is now the largest gold producer in Australia, said the proposed changes had “completely destroyed” the balance between risk and return for investors in exploration.
“These changes to the CGT will ultimately cut the jugular of the Australian economy,” Mr Beament said.
“I’ve always had this saying: ‘if you don’t drill, you don’t find, if you don’t find, you don’t mine, and if we don’t keep drilling and digging, the economy collapses’.”
Veteran geologist and executive Mark Bennett, whose involvement in multiple nickel and gold projects in Western Australia saw him twice named Australia’s prospector of the year, said the impact of the CGT changes was more unfair than the mining tax proposal from the Rudd era.
“If your intent is to raise revenue as a government from those periods where commodities are really booming and companies are making ridiculous profits, then that seems more reasonable to me than this,” Mr Bennett said.
He said the impact of the CGT changes on the ability of companies at the small end of the market to raise money would not be immediately apparent, but would eventually have a “massive” impact on the economic ecosystem.
“There’ll be less capital available for juniors to explore, there’ll be fewer discoveries, and the better of those discoveries will not be available for the bigger guys up the food chain. There’ll be fewer mines and less of the income generated by those for the rest of the country,” he said, adding: “They are undermining the future.”
Veteran Perth investment banker Liam Twigger – the vice-chair of corporate finance at Argonaut, which helps many of those smaller resources companies raise capital – said the increased CGT obligations would be a massive disincentive for investing in speculative mineral exploration.
“It’s an insanity and it’s going to smash a junior resources sector that is already struggling,” he said.
“It’s just a complete and utter miscalculation by people who’ve never had a real job.
“These people have never had to risk anything, they’ve been in a giant humidity crib being paid by the government, but if you get out on the real street and try and earn a living, and put your house on the line to buy a fish and chip shop or start a mine, you risk all of that, but the government gets half if you get it right and you lose everything if you get it wrong. It’s just wrong. It’s fundamentally flawed.”
Amid a push by the tech sector for start-up companies to be protected from the changes, the resources sector is campaigning for similar provisions for smaller mineral explorers.
The Chamber of Minerals and Energy of Western Australia’s membership is dominated by larger miners with less direct exposure to the changes, but the organisation’s CEO, Aaron Morey, said those members were well aware of the ultimate impact that a drop in exploration activity could have for their longer-term futures.
“Those small explorers, they construct the pipeline projects that eventually become projects that pay billions of dollars in royalties and employ hundreds of thousands of Australians,” he said.
“And if we don’t continue to generate a pipeline of projects, then what you’ll find is that the contribution of the mining sector will diminish over time and there’s no way on earth that anything’s going to replace it with anything like the scale of which it contributes to society.”
He said the CME was engaging with Treasury to press the case for a carve-out for junior explorers as part of any CGT start-up provisions. “We’re focused and determined to ensure that mineral exploration is recognised as being an absolutely critical part of the start-up economy,” he said.
The growing concern about the impact of the CGT changes on the mining industry could turn into another showdown between the sector and the Labor government.
The backlash over the proposed super profits tax put forward by Mr Swan in 2010 ultimately destabilised the government and led to the rolling of prime minister Kevin Rudd.
Speaking at a CME lunch in Perth on Thursday, Dr Chalmers said he was aware of industry concern about the impact of the CGT changes on the exploration sector.
“We take that feedback very seriously. But overwhelmingly, what we’re trying to do is do a better job of recognising the real gains people make, when they make these important investments,” he said.
The Treasurer said his department recognised the “different set of considerations” facing the start-up community and was working with the start-up sector “to see if we can find a way through”.
Ken Brinsden – a former managing director of Pilbara Minerals and Atlas Iron who now leads lithium company PMET Resources – said he had lost count of the number of small shareholders who had told him they had secured their financial futures after investing a portion of their wages into junior exploration companies.
But he said the CGT increase and ongoing bracket creep would make that investment far harder for smaller investors in the future.