PDAC urges government action to avert ‘death by a thousand cuts’
PDAC warns that rising tax pressures, regulatory hurdles and declining investment threaten the future of Canada’s mineral exploration and mining sector. getty images
Buffeted by external and internal pressures, Canada’s mineral industry faces a precarious moment. At a time of an escalating trade conflict with the U.S. and resulting economic uncertainty, the sector is also subject to intensifying tax pressures, stricter foreign investment rules and mounting regulatory challenges from within Canada.
The Prospectors and Developers Association of Canada (PDAC) is issuing a stark warning and call to action: rather than risk a prolonged downturn with ripple effects across the entire economy, Canada needs to seize the moment to strengthen this vital industry and cement its position as trade partner of choice for like-minded nations.
“Without immediate action from the federal government, we risk destabilizing the entire mineral exploration and mining industry,” says PDAC President Raymond Goldie. “Inaction from Ottawa would not only threaten Canada’s global leadership in minerals but also endanger the supply chains, jobs and communities nationwide that rely on this vital sector.”
The warning follows reports from both the Toronto Stock Exchange and TSX Venture Exchange showing significant decline in 2024 investment. PDAC notes that mining and exploration companies make up nearly a third, by market capitalization, of Canadian investment. Accordingly, the association warns that if this downward trend continues, it will have devastating consequences not only for the mineral sector but also for the entire Canadian economy.
The challenges facing the mineral exploration and development sector include proposals to increase capital gains taxes, to adjust to the alternative minimum tax, and to tighten restrictions on foreign capital under the Investment Canada Act. “We call it ‘death by a thousand cuts,’” explains Mr. Goldie. “It’s not one policy but the cumulative impact of many that has put the future of this industry – and Canada’s economic health – at risk.”
“Without immediate action from the federal government, we risk destabilizing the entire mineral exploration and mining industry. Inaction from Ottawa would not only threaten Canada’s global leadership in minerals but also endanger the supply chains, jobs and communities nationwide that rely on this vital sector.
”
The case for renewing the METC
The Mineral Exploration Tax Credit (METC) has been a cornerstone of Canada’s mining sector since its introduction in 2000. A made-in-Canada program, the METC has distinguished the country as a global leader in mineral exploration. It has driven over $20-billion in equity financing, created jobs, supported remote and Indigenous communities, and enabled discoveries critical to the mining ecosystem. Crucially, the METC achieves all this without requiring direct public funding, making it one of the most cost-effective policies in Canadian investment.
Now, the METC is at risk. Set to expire in March, its loss would have dire consequences for Canada’s mineral sector. PDAC explains that allowing the METC to lapse would derail investment, halt exploration projects and destabilize the financial ecosystem underpinning the industry.
“We cannot afford to let such a crucial program slip away at a time when the sector is already under pressure,” says Mr. Goldie. “The METC is the backbone of grassroots exploration, and its potential expiration has already damaged the confidence of investors. At risk are Canada’s resource supply chains and the future of our mining industry.”
Flow-through shares, ‘phantom gains’ and AMT worries
Another pressing issue is the flow-through share (FTS) mechanism, which encourages private investors to fund junior exploration companies by allowing them to deduct exploration expenses. While FTSs have been crucial in financing high-risk exploration, they are now mired in concerns about amended capital gains tax rules and the Alternative Minimum Tax. Because FTSs are deemed to have a “nil cost base,” investors can face so-called “phantom capital gains” upon share disposition even if they were to sell their shares below the original issue price.
PDAC recommends changing the capital gains calculation to use the actual purchase price rather than a base of nil. “This one fix could open the door to a broader range of investors and end an unfair tax penalty that discourages new capital,” says Mr. Goldie.
Bridging the feasibility gap
Flow-through financing is largely limited to early-stage exploration classified under Canadian Exploration Expense (CEE). Once a project advances into economic feasibility studies, flow-through eligibility ends. PDAC believes closing this gap is essential to ensure more projects can progress from discovery to full-scale production.
Specifically, PDAC is calling for flow-through eligibility to be extended beyond the exploration stage, to covering scoping and feasibility work that are very expensive but must be completed to move a project from concept to reality. By broadening the scope of eligible expenses, junior mining companies could secure the capital required to move promising discoveries toward development.
“If companies can’t use flow-through financing for vital feasibility studies, the pipeline breaks down. We end up with stranded assets, and new mines never come into production,” Mr. Goldie explains.
Make-or-break moment
PDAC cautions that delays in resolving these challenges will leave Canada lagging in the global race for minerals, with far-reaching consequences for the country’s economic future.
“This is a make-or-break moment for Canada’s mineral sector,” says Mr. Goldie. “Without immediate action to renew the METC, to address tax burdens and to strengthen financing support, we risk dismantling the industry’s progress, jeopardizing jobs, supply chains and the prosperity of remote and Indigenous communities.”
A decisive response now will help Canada remain a global leader in mineral exploration – securing the benefits of this essential sector for decades to come.
To view this report on The Globe's website, visit globeandmail.com
To view the full report as it appeared in The Globe's print edition Investing in mining