With Yukon mineral exploration on the rise the territorial government is capping its tax incentive for mining companies.
Last year saw more than $50 million invested in the Yukon mining sector. And Energy, Mines and Resources minister Archie Lang predicts more exploration in 2006.
“I think we’re looking at $60 million or $70 million this year, optimistically,” said Lang on Tuesday from Vancouver, where he was attending the Mineral Exploration Roundup conference with First Nations, government and industry players from Western Canada and Alaska.
“This coming season is going to be, probably, the largest exploration year investment in probably 15 years.”
The Yukon mineral exploration tax credit will be capped at $300,000 from April 2006 until March 2007.
Since 1999, the territory has offered a 25-per-cent corporate and personal-income-tax credit for off-site mining exploration expenses, with no upper limit.
The former New Democratic Party government introduced the tax incentive to stimulate the depressed mining sector, with a commitment to re-examine the credit if market conditions improved and overall exploration spending exceeded $30 million.
Eventually the credit could be discontinued entirely.
“Nobody likes to be cut back; that’s only human nature,” said Lang.
“We’re a very small jurisdiction, we don’t have the resources of Quebec or Ontario, so we have to manage the money and the treasury too. We have to take that into consideration.”
Capping the industry subsidy won’t deter mineral exploration, said Lang.
Based on last year’s numbers, 90 per cent of explorers would still receive the 25 per cent credit, he added.
High global prices for minerals, driven by Chinese and Indian markets, prompted the government to cap the tax credit.
But other regions, like the Northwest Territories, don’t have a local tax incentive program.
“The argument might be that we don’t need (a tax incentive),” said Drew Williams, spokesman for the NWT department of Industry, Tourism and Investment.
Federal projections indicate that more than $150 million was spent on exploration in the NWT in 2005.
There are enough diamonds and minerals, plus the prospect of a natural gas pipeline, that the territory doesn’t need to lure investment, he said.
“Tax incentives were certainly part of the picture when our diamond mines were starting up and our gold mines were going under,” said Williams.
“Diamonds have been a real turnaround for us.”
There are several major mining prospects nearing production in the Yukon, notably Yukon Zinc Corp.’s Wolverine deposit in the Finlayson Lake area northwest of Watson Lake.
But Sherwood Copper Corp.’s Minto property northwest of Carmacks is the most promising.
“Minto is probably the frontrunner in production,” said Lang.
“Minto has all their licences in place. They’ve gone through the regulatory process, so they’ve got water licence, they’ve got production, they’ve got quartz.
“They’re in a position to move forward, and I would say that they will be the first mine on line in the territory, if I was a betting man.”
The capped tax incentive won’t deter companies with lesser investments from exploring, said Yukon Chamber of Mines president John Witham.
“Junior companies are probably maximizing the benefits at present at about the $300,000 level, and we do have a couple of larger companies that would probably exceed that,” Witham said Friday from Vancouver.
“The figure that they’ve picked would capture nearly all of the grassroots exploration projects, which that tax incentive was designed to attract.
“We’re fine with it. We were kind of hoping for a higher cap, but it’s certainly workable.”
Former federal Finance minister Ralph Goodale recently announced the suspension of a tax credit on flow-through shares for Yukon operations, added Witham.
“Without the (Yukon government) tax credit, the Yukon would have been in trouble.
“But it puts us on a level playing field, tax-wise, with other regions in Canada.”
Flow-through shares are funds controlled by investors, and are not true capital in a company’s hands.
Some junior companies that use them — like Logan Resources Ltd. — won’t even apply for the Yukon tax credit.
“If you raise flow-through money, you can’t take advantage of it,” said Logan president Seamus Young, who plans to drill 21,000 kilometres of exploration holes on three properties near Dawson City this summer, looking for copper, gold and uranium.
The change to the tax incentive won’t have any bearing on Logan’s activities in the Yukon, said Young.
“For little guys like us it’s easy to raise flow-through money,” he said.
“The investors get the tax incentive, and if the investors get the tax incentive we can’t get our money back.
“We can’t claim it back. It’s fraudulent if you do it.”
More than 5,000 delegates from around the world, but mostly from western Canada, attended the week-long conference, up from 1,200 at Roundup in 2004.