EDITORIAL PAGE — Exodus

Are Canadian mining companies somehow letting down the home side by jumping on the global bandwagon and acquiring projects everywhere from Peru to Mongolia? Or have the federal and provincial governments, by their seeming indifference (and, in some provinces, outright hostility) to mining, betrayed the industry?

There is no easy answer to either question. What is not in doubt is that companies are being attracted to other regions of the world for various reasons — virgin geology, governments that openly welcome mine exploration, comparatively lax environmental rules (in some, not all, jurisdictions), cheaper labor, lower tax rates and so on.

These factors must, of course, be weighed against political and economic risks, the level of graft and corruption, the availability of equipment, tariffs, etc.

Likewise in Canada. Companies presumably have assessed the risk-reward equation and found it, by and large, wanting. The fact that both junior (in this case, non-producing) and senior companies have drifted far from home is significant, considering that the two operate according to different imperatives.

Juniors, for lack of cash flow from a producing mine to fund their efforts, require investor interest to maintain share prices at reasonable levels in the event they need to tap equity markets to replenish treasuries. Therefore, the possibility of a high level of investor interest (together, of course, with geological potential) must enter into the project selection formula. (It should be noted that the same principle applies to many senior companies, but generally to a lesser degree.) Today, domestic projects tend to be tougher “sells” than those farther afield.

Why? Because investors have, on the whole, become disillusioned with mining prospects in Canada.

Fortunately, a host of Canadian mining groups have come to recognize the urgency of the situation. Out of this climate of concern have sprung a number of significant initiatives — the Whitehorse Mining Initiative, revitalized “Mining Weeks” across the country, the “Keep Mining in Canada” campaign, the recent creation of Mining House in British Columbia and new provincial programs to stimulate exploration.

But will all this be enough to rekindle interest among investors? Not in the short term. If all goes well, these initiatives should lead to a more favorable perception of the industry by the Canadian public. And they may even foster a better understanding of the nature of the industry within both levels of government. But they aren’t likely to help the junior exploration outfits committed to projects within Canada.

In the current investment climate, with so many countries clamoring for exploration investment, a junior with a promising geological prospect in northern Ontario, Manitoba or Newfoundland faces more difficulties in attracting investor interest than a junior with a less promising play somewhere else in the world.

In stating this, we do not mean to denigrate the juniors who have gone offshore. Rather, we are lamenting the state of exploration at home. So what can be done to improve the domestic scene?

We propose some form of tax incentive, like flow-through shares as they existed in the late 1980s, but without the excesses. Based on past experience, the government should be able to fashion a tax incentive that would attract investors and, at the same time, determine exactly how that money should be spent by the juniors.