Mining industry demands equitable treatment

This country’s mining industry presented a strong case to a meeting of energy and mines ministers here for more equitable treatment in the face of historically low commodity prices.

Although the crisis in the energy sector (N.M., Sept 22/86) dominated the proceedings, the ministers appeared to recognize that government had a role to play in revitalizing Canada’s mining industry.

Admitting that flow-through share financings had reversed the downward trend in prospecting and exploration, the Prospectors and Developers Association asked for yet a better deal for junior mining companies. Its president, Dr Lionel Kilburn, pointed out that “taxable operating mining companies have had, and still have, an advantage over junior mining companies without resource income.”

He recommended a flow- through scheme whereby preproduction development expenses plus depletion would be deductible by these companies. Shifting to development would move funds to “less risky business,” and he argued the present system gives the company with taxable resource income an increased rate of return as compared to junior companies.

Canadianization of new mines would be an important side benefit from the recommendations because only Canadian taxpayers could use the advantage, he pointed out.

Prospecting and exploration expenditures on non-operating mine properties are expected to reach $700 million-$750 million during 1986 and Mr Kilburn added the discovery of new and higher grade mineral deposits would allow us to compete better internationally.

In an interview, Dr George Miller, managing director for the Mining Association of Canada, admitted there was some resistance to extending flow- through into the development phase. He also called for a more liberal interpretation of on-property exploration expenditures, and noted that limited partnerships don’t get the same treatment others do for flow-through shares.

Mr Miller expressed concern over a government proposal for corporate tax reform, suggesting that mining could end up carrying a larger tax load. He said the industry would be in trouble if the government eliminated such things as the resource allowance, capital cost and earned depletion, claiming the association wants to prepare an impact analysis on their elimination.

Faced with decreasing prices and profit margins, the coal industry has made headway at increasing productivity and reducing operating costs. But Dr G. A. Capobianco, Coal Association of Canada chairman, said many of these gains have been offset by government taxation.

Getting into specifics, he noted that Finance Minister Michael Wilson introduced a 2 cents -per-litre excise tax on all gasoline and diesel fuel effective Sept 3, 1985. That tax will cost the industry more than $6.5 million in 1986, the association forecasts. That figure includes approximately $2.4 million of excise tax on diesel fuel consumed by rail companies, which will be passed on to coal producers, he noted.

Mr Capobianco also pointed out that a federal tax rebate for off- highway consumption of fuel expires at the end of 1987, which could increase industry fuel costs by another $6 million and he recommended it not be allowed to expire. Calling for deregulation of Canada’s rail industry, he said the shipment of western coal into the eastern market could have a major impact on the industry. “We can supply low sulphur coal when it is required,” he said, noting that freight rates were a major obstacle to shipping that coal to eastern markets.