Good afternoon, Mr. Chair and committee members.
My name is Tom King. I would like thank you for the invitation to appear before this committee and offer comments on proposed measures for inclusion in the 2013 federal budget on behalf of the Prospectors and Developers Association of Canada.
I am the co-chair of the PDAC finance and tax committee and an associate tax partner at KPMG LLP. The PDAC is a national association representing more than 10,000 members involved in the mineral exploration and development industry, both in Canada and around the world.
The mining sector creates jobs and economic stimulus in some of the remotest communities in Canada. In 2010 the mining industry employed 308,000 people, contributed $36 billion to the national GDP, and paid $5.5 billion to governments in taxes and royalties. Mineral exploration and mining are the lifeblood of many rural and remote communities throughout Canada and represent the largest private sector employer of aboriginals in Canada.
Canada is recognized as a leader in mineral exploration, development, financing, mining, and related technologies, services, and activities. In 2011 we led all countries, with 18% of the world's mineral exploration spending, while Australia was second, at 13%.
The TSX Venture Exchange is number one in equity capital raised for mining and number one in listed mining companies, with 58% of the world's total. At the end of 2011,1,646 companies—or 43%—that were listed on the TSX Venture Exchange were from the mining sector. In comparison, the Australian exchange lists 700, and the New York Stock Exchange lists 141.
One of the most influential elements of Canada's exploration leadership is attributable in part to measures included in our tax system to assist the junior mining industry in raising equity: more specifically, provisions in respect of flow-through share financing, which assists both early stage grassroots exploration and funding in the significant costs incurred to bring a mine into production, and the mineral exploration tax credit, which I'll refer to as METC and which is focused solely on funds raised to undertake early stage grassroots exploration in Canada. These are the lifeblood of a junior mining industry.
Mr. Chairman, the METC is vitally important, as exploration companies have no production revenue. Most are small businesses that rely on investors who are willing to support the high-risk nature of exploration. As the research and development branch of the mining sector, exploration companies do not have production revenue and rely on investors who are prepared to support their high-risk activities.
The ongoing global financial crisis and contraction of the equity markets have had a dramatic and negative effect on the exploration sector. While precious metals and some base metals continue to see relatively good pricing, which has benefited our operating mines, the junior exploration sector is currently facing a downturn.
Reduced investments lead to fewer drilling programs and negatively impact regional employment and income, particularly in rural, northern, and aboriginal communities. Our concern is that without sustained and effective exploration, Canadian mineral production will outstrip additions to its reserves, jeopardizing the country's smelters and refiners and placing the domestic mining industry at risk.