Thank you, Madam Chair.
I want to begin by recognizing the traditional and unceded territory of the Anishinabe Algonquin nation and the hundreds of indigenous communities across the country with which we work closely.
Today I will focus on Bill C-31's proposed change to the Canadian exploration expense, or CEE. I would note that this matter is most relevant to the junior mining sector, represented by groups such as PDAC. We have been supporting PDAC in its advocacy on this issue, but would encourage the committee to meet with them directly.
This change follows a Supreme Court of British Columbia decision that found determining a mineral resource's quality could include assessing its economic viability, allowing most of the disputed engineering and technical study costs to qualify for the provincial mining exploration tax credit. Budget 2025 cited this decision and proposed clarifying that federal CEE eligibility excludes economic viability and engineering feasibility expenses. Clause 9 of Bill C-31 implements that approach by replacing “quality” with “inherent natural qualities”, referring only to the deposit's underlying physical characteristics, such as grade, mineral composition and geology.
In other words, the federal government is not accepting the court's ruling. In so doing, the government is exacerbating a financing gap at precisely the stage when companies must determine whether a discovery can become a viable mine. It also goes against the Liberal Party's election promise to include these costs, at least for critical mineral projects.
Canada has developed one of the world's most successful systems for financing mineral exploration through CEE and flow-through shares. CEE identifies exploration costs that qualify for a tax deduction. Junior companies have no operating revenue and little to no taxable income, so a deduction offers no benefit to the company. Instead, through flow-through shares, juniors raise money to pay for eligible work. Investors buy shares. The company uses that money for exploration. The company then passes on the deductions for eligible expenses to those investors, who can use them to reduce their taxable income. The investor receives a tax benefit. The junior receives cash to carry out the work.
Flow-through shares provide approximately 70% of the funds raised on Canadian stock exchanges for domestic exploration. Junior companies also accounted for half of Canada's $4.3 billion in exploration and deposit appraisal spending in 2024. Their ability to finance the next stage of technical work is critical to our future mine development pipeline.
However, discovering the deposit is only the beginning. Companies must complete preliminary economic assessments, prefeasibility studies and feasibility studies. These progressively establish how a deposit can be mined and processed, what infrastructure would be needed, what development would cost and whether a project is economically viable.
This work is essential to making sound investment decisions. It provides the evidence that lenders and investors need before committing construction capital. It is also expensive and has become more expensive over time as requirements have increased. It could be anywhere from $5 million to $25 million for larger or complex projects. These costs arise before a project generates revenue, and often before it can access the financing needed to proceed. The result is that projects fall into the so-called valley of death, and Bill C-31 is essentially condemning them to that.
We therefore recommend that you reverse this amendment, respect the decision of the B.C. Supreme Court and follow through on the government's election promise to include these studies. We would prefer that you extend it beyond just critical mineral projects to include the entire mining sector. The financing challenge extends across base, precious and critical minerals, and many Canadian deposits contain multiple commodities.
Expanding CEE would help viable projects advance towards production at a time when our smelting and refining capacity has declined. A stronger pipeline of Canadian mines would provide reliable feedstock to help sustain our remaining facilities and support investment in domestic processing.
Thanks very much.