Doug Ashbury
Northern News Services

Yellowknife (Jan 24/00) - The Prospectors and Developers Association of Canada has just one word for the condition of the country's mineral exploration sector -- "crisis."

"Early in November the board approved use of the word 'crisis'," said David Comba, the association's issues management director, in a speech to the NWT Chamber of Mines last week.

In many cases, junior companies are finding themselves with only enough money to keep their companies listed on a stock exchange, he said.

"Our indication is, a lot of drilling companies are facing chapter 11 (bankruptcy)," he said.

"(At senior resource companies) exploration staffs have been cut back dramatically. The torch was passed to the juniors to do green-fields exploration work. And up to about 18 months ago, they were up to the job," he said.

That's no longer the case, and the way to get more money into the sector, according to the association, is a premium on flow-through shares.

The association, in partnership with the Canadian Diamond Drilling Association, is lobbying the federal government to put a premium on flow-through shares.

The groups want the House of Commons Finance Committee to approve a redesigned mineral exploration depletion allowance premium for flow-through shares. And they want it included in the next federal budget.

Comba said the association believes it has made the short list of requests being reviewed by Karl Littler, Finance Minister Paul Martin's senior policy advisor, tax policy and financial sector.

Flow-through shares stimulate investment in resource companies by giving investors a tax break.

Revenue Canada allows exploration companies to write-off 100 per cent of exploration costs in the year they were incurred. This write-off is useless for junior exploration companies with no income. So, by issuing flow through shares, these companies can "flow" the write-off through to investors who purchase them. Investors can currently deduct 100 per cent of any money invested in flow-through shares against any income.

The shares cannot be sold for one year and when they are, Revenue Canada deems that the investor bought the shares for nothing and taxes the entire proceeds of the sale.

The groups want the program sweetened with a premium of 40 per cent on the flow-through shares bought this year, 20 per cent next year and 20 per cent the year after that.

Comba said the organization is proposing $295 million in foregone tax revenue over three years.

"We think this will raise $1.1 billion over three years for juniors."

This program created a huge amount of investment in the resource industry in the mid-1980s, when the premium was 133.3 per cent.

It's major drawback then may have been that the money had to be spent soon after it was received. This time around, the rules would allow resource companies to spend flow-through money by the end of the following year that the investment was made.

Today, the NWT is a beneficiary of the 1980s flow-through program, according to Comba. "Gren Thomas (former head of Aber) and (Ekati's) Chuck Fipke were using flow-through money," Comba said.

"PDAC believes there are investors out there interested in juniors," people interested in high-risk stocks, he said.

Comba points to the so-called "dot com" stocks that have taken off. This segment of stocks is as overheated as the junior exploration companies were several years ago, he adds.