Mining entrepreneur Warwick Anderson has shelved plans to list his junior exploration company on the ASX and is instead focusing on Canada in the wake of the federal government’s proposed capital gains tax changes.
The managing director of Gold Mines Australia (GMA) and his family are among those most exposed to tax changes that have rattled the minerals exploration industry, as Canberra resists calls for a carve-out.
Mr Anderson is trying to find what could become Australia’s next big mine with the help of investors willing to put their money into high-risk and occasionally high-reward exploration.
When he’s not out bush with geologist wife Sheree – sometimes with their sons – in search of a big find, he’s talking with brokers and potential retail investors.
GMA has about 700 square kilometres of exploration area in Queensland near the NSW border and had planned to raise about $2m in seed capital followed by a bigger raising of up to $8m.
Mr Anderson said those plans were now on hold because investors had been spooked by the announced increase in taxes.
Under federal Labor’s changes which replace a 50 per cent CGT discount with a discount linked to the rate of inflation, the tax payable on shares sold in a company after it makes a major minerals discovery would almost double.
Veteran explorer Tim Goyder, who delivered a windfall to thousands of retail investors through the success of lithium miner Liontown Resources, and iron ore billionaire Gina Rinehart are among those saying that the tax changes will discourage investment in the next generation of mineral discoveries.
Mr Anderson is the originator of more than 10 exploration projects across his career, including QMines Limited’s re-born Mt Chalmers copper-gold project.
He said GMA would not list on the ASX and was turning its attention to Canada pending more clarity on the tax changes and their likely impact on Australian capital markets – particularly for early-stage companies.
“I’ve just been in Sydney and the consensus I get is that investors are worried. I’m someone who’s happy to play the cards I’ve been dealt but right now we’ve got a couple of jokers waving around a mystery card,” he said.
Mr Anderson has spelled out his concerns in a letter to lobby group Association of Mining and Exploration Companies, which is fighting the tax hike on behalf of more than 570 members.
“The issue is not theoretical for us,” he said. “Junior exploration companies depend heavily on risk capital. Investors in this sector accept high geological, technical and market risk because there is at least the potential for capital upside if a discovery is made or a company successfully lists and grows.
“If the tax settings reduce the attractiveness of that upside, the natural consequence is that capital will seek other jurisdictions.”
Mr Anderson said GMA was now mulling a Canadian listing and he has had experience in that jurisdiction as well as Australia.
“Canada has a deeper and more established market for junior resource exploration capital, and if Australian policy settings become less attractive, it may become a more logical jurisdiction for companies like ours,” he said.
“The longer-term issue is potentially more serious than a single IPO being delayed or redirected. If Australian exploration companies increasingly choose offshore capital markets, the next cohort of Australian discoveries may be owned, financed and valued through foreign-listed vehicles.
“Australia may still receive some benefits through royalties, but the larger value creation, the equity upside, market valuation, institutional ownership, advisory fees, merger and acquisition activity, and corporate control may increasingly accrue offshore.”
Mr Anderson said that in practical terms, Australia risked having the geology while exporting the value chain. “The mines may still be located in Australia, but the companies that discover, finance and own them could increasingly belong to Canada or other overseas capital markets,” he said.
“That would be a poor strategic outcome for a country whose future resource projects depend on a healthy domestic exploration and capital formation ecosystem.
“In our case, the proposed changes have already caused a real commercial delay. We were preparing to list in Australia.
“We have now paused that process and are assessing whether Canada offers a better capital markets pathway.”
AMEC chief executive Warren Pearce said the sector had not given up the fight for a carve-out despite no breakthrough after talks with Treasury officials, and WA premier Roger Cook urging his Labor colleagues in Canberra to relent.
Mr Pearce said he hoped “common sense” would prevail.
“After meetings with Treasury and the upcoming Senate hearings, AMEC is continuing to pursue the case for an exemption for the mineral exploration industry,” he said. “Obviously, it’s difficult for the government to provide exemptions for the entire business community, but we believe mineral exploration must be treated just like the tech sector. They’re both pre-revenue start-ups who build businesses exactly the same way.”
AMEC is preparing a submission to Treasury, to highlight the many similarities between exploration and tech start-ups.