Keep CGT discount for junior mining explorers to secure Australia’s critical minerals future

• Nothing carries more investment risk than setting out to build a mine
• CGT changes to cut investor returns by 19 per cent, driving investment away from junior explorers
• Investment in eligible early‑stage exploration similar to investment in venture capital and start-ups, so should get comparable CGT treatment.

The Federal Government’s proposed changes to capital gains tax for junior minerals exploration companies will adversely impact the ability of these companies to raise funds from individual investors for much-needed greenfields mineral exploration in Australia.

Greenfields exploration is the search for new mineral deposits in areas where no deposits have previously been discovered or developed.

Only one in every 100 exploration projects on average passes a final investment decision to be developed into a mine.

A retail investor in a junior explorer typically receives no income over many years (often 10 years or more), is subject to high failure rates and hence no return on investment and relies entirely on capital gains if a discovery is made.

The MCA has calculated as part of its submission to the Senate Economics Legislation Committee that under the proposed changes, a shareholder on a marginal tax rate of 37 per cent who invests $10,000 in shares and holds for five years without receiving any dividends or other cashflow before receiving a capital gain of $20,000 would receive around $16,300 in after-tax returns with the 50 per cent discount, but only about $13,064 under the proposed CGT changes, a reduction in the return on investment of 19 per cent.

The proposed changes to CGT risk further suppressing exploration activity at a time when greenfields spending as a share of total exploration spending is declining in Australia from roughly one-third over recent years to a quarter in the last financial year.

Crippling our junior explorers by increasing capital gains tax would undermine the development of our critical minerals sector just when the world is demanding stronger supply chains and greater strategic resilience in minerals supply.

When the United States is looking to increase tariffs on our critical minerals exports, Australia should be making minerals exploration more competitive, not burdening this crucial sector with higher taxes.

We should be doing all we can to encourage and promote our world-class geologists and engineers, because we can’t afford to drive explorers offshore with higher taxes.

The MCA supports measures that de-risk early-stage exploration, maintain investor confidence, and sustain the discovery pipeline needed to underpin future resource projects and national economic growth.

On this basis, investments in early-stage exploration companies should continue to qualify for continued access to the 50 per cent CGT discount after 30 June 2027 to ensure a more coherent and economically balanced outcome.