19.12 2013

Proposed tax breaks to attract investment into junior explorers

What is it?

The Coalition has promised to implement the Mineral Exploration Tax Credit (METC) as an incentive for taxpayers to invest in companies raising equity for ‘eligible exploration expenditureand as a measure to address rapidly declining exploration investment in Australian greenfield mineral discoveries.


When will it commence?

It is currently proposed to commence on 1 July 2014.



Available only:


  • to Australian resident taxpayers;
  • for small exploration companies with no taxable income;
  • in respect of ‘eligible exploration expenditure’ – This concept is to be aligned with the “exploration expenditure” definition for income tax purposes. It will exclude costs incurred in relation to: obtaining mining information; and feasibility studies to evaluate economic feasibility.


Two models at issuer’s election

The METC will see current exploration losses being passed back to shareholders by way of a tax credit against their tax liability (at their prevailing tax rate), or a refund if the credit exceeds taxable income.


Alternatively the junior explorer may choose to not to pass back the exploration losses to their shareholders. Such a decision would need to be declared to a market (e.g. in any disclosure or offer).


New ASX Listing Rules for Mining, Oil and Gas entities to improve disclosure

The new ASX Listing Rules for mining and oil and gas reporting commenced on 1 December 2013 and are designed to increase and improve the disclosure made by such entities.


Who do the changes apply to?

Entities whose main undertaking consists of:


  • exploration for petroleum or which has been advised by ASX as an oil or gas exploration entity for the purposes of the Listing Rules;
  • extraction of petroleum or has been advised by ASX that it is an oil and gas producing entity for the purposes of the Listing Rules.


Why have the requirements been introduced?

The requirements are intended to align ASX’s framework for reporting oil and gas activities with global industry standards and to promote greater consistency in and quality of the public reporting of these activities.


What are the requirements?

The reporting requirements are set out in Chapter 5 of the Listing Rules and include:


  • general requirements set out in Listing Rules 5.25 to 5.28, which apply to all public reports of petroleum resources, that is, all listed entities reporting petroleum resources not just to oil and gas entities within the meaning of the Listing Rules; and
  • more specific reporting requirements set out in Listing Rules 5.29 to 5.45, which include reporting of:

……….– geophysical survey information (Listing Rule 5.29);

……….– material exploration and drilling results (Listing Rule 5.30); and

……….– petroleum resources for material oil and gas projects (Listing Rules 5.31 to 5.36).


ASX has also released Guidance Note 32 – Reporting Oil and Gas Activities.


The reporting framework for oil and gas activities in Chapter 5 is underpinned by the Petroleum Resources  Management System (SPE-PRMS) sponsored by the Society of Petroleum Engineers, the American Association of Petroleum Geologists, the World Petroleum Council and the Society of Petroleum Evaluation Engineers.


SPE-PRMS is an industry-sponsored set of guidelines that provide standardised definitions and a comprehensive classification system of petroleum resources. The objective of Chapter 5 is to be consistent with SPE-PRMs, however if there are any inconsistences between the two, the Listing Rules prevail.


Interaction of Chapter 5 with other reporting obligations

The reporting obligations in Chapter 5 are in addition to, and operate in conjunction with the reporting and disclosure requirements in Chapter 3 (continuous disclosure) and Chapter 4 (periodic disclosure) of the Listing Rules.


Challenges for emerging market issuers

Who is an emerging market issuer?

Emerging market issuers (EMIse) are entities with significant operations or assets in ’emerging markets’. ‘Emerging markets’ include Eastern Europe, Asia and the Pacific (excluding Singapore, Hong Kong, Japan and New Zealand), Africa, South America or the Middle East.


Common challenges of EMIs

Common challenges faced by EMIs stem from a general unfamiliarity with and implementation of Australian legal requirements and can include:


  • difficulties experienced with implementing good corporate governance, commonly difficult to achieve by EMIs given the typical geographical scattering of board members and limited financial resources;
  • where the EMI’s operations are geographically diverse, implementing effective internal controls and risk management systems;
  • the consequences of operating through complex ownership or contractual arrangements;
  • the raised risk associated with relying on one or two key individuals located outside Australia, which may lead to related party transactions providing substantial financial benefits to those individuals; and
  • verification of information or opinions about the EMI’s operations and performance.


Following ASIC’s publication of the findings of its review in Report 368, ASIC has cautioned that it will continue to monitor EMIs by including a number of these entities in its financial reporting surveillance programs and through reviewing prospectus and other selected disclosure documents lodged with ASIC.



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