Article:

Capitalising on greenfield mining opportunities

02 March 2020

Sharnie Mitchell , Partner, Tax |

Greenfield mining is a difficult enterprise. The nature of exploring completely unexplored areas in search of new resources encompasses a high level of risk. Junior explorers engaging in greenfield mining often encounter long periods before profitability, given the lengthy process between exploration and production. One of the major tools junior explorers have at their disposal is their carried forward tax losses, which may assist to reduce tax liabilities once the company becomes profitable.

Despite these challenges, many junior explorers have found the Junior Minerals Exploration Incentive (JMEI) a useful tool for encouraging investment.

JMEI

The JMEI is designed to increase investment in junior explorers carrying out greenfield mining. The explorer must be a disclosing entity under section 111AC of the Corporations Act 2001 who has not generated a taxable income as a result of their exploration expenditure. The JMEI does not apply for expenditure incurred for feasibility studies, or the exploration for petroleum or oil. It allows these companies to convert a portion of their tax losses into a tax exploration credit, which can be distributed to investors. The investors eligible to receive credits are investors who have acquired new shares in the company in current or previous financial years. The credits result in a refundable tax offset to non-corporate investors and additional franking credits for corporate investors. This is a highly effective and demonstrated method of attracting new investors to junior explorers, who may struggle to raise capital.

This incentive commenced in the 2017/2018 financial year and operates for four years to 2020/2021. The following yearly cap restricts the ATO on the amount of credits that can be provided.

Year

JMEI Cap

2017 / 2018 $15m
2018 / 2019 $25m
2019 / 2020 $30m
2020 / 2021 $30m

A single junior explorer is entitled to a maximum of 5% of the cap for a given financial year. For instance, the maximum an explorer could receive in the current 2019/2020 income year is $1.5m. Taking advantage of this incentive requires quick and time-sensitive action as credits under the JMEI are allocated by the ATO on a first-come, first-served basis. The application period for the upcoming financial year opens on 1 June 2020 and closes on 30 June 2020.

How can BDO help?

 The JMEI presents an opportunity for junior explorers to raise capital. However, the cap on credits requires prompt action to be taken in consultation with advisers. BDO have taxation experts with significant experience in the mining industry, particularly with the application and allocation process that the JMEI entails. Please contact Sharnie Mitchell or a member of our experienced Natural Resources team to ensure that you can capitalise on this taxation opportunity.