A review of the Junior Minerals Exploration Incentive (JMEI) program

Discovering new mineral resources through exploration is a crucial aspect of the Australian economy, however it comes with significant risks and costs. Junior mineral exploration companies often face significant barriers due to the high risks and costs associated with greenfield exploration, where it can be more difficult to raise funding than other types of exploration.

The Junior Minerals Exploration Incentive (JMEI) is a program designed by the Australian Government to stimulate investment in greenfield mineral exploration across Australia. The program allows exploration companies to convert their tax losses into credits, which can help attract new investors and fuel growth and innovation within the mineral exploration sector.

In a report commissioned by the Association of Mining and Exploration Companies (AMEC), BDO’s economic experts evaluated the JMEI's economic impact on the natural resources industry and analysed its effectiveness as an incentive to increase Australian mineral exploration investment and activity.  

Overall, our study found that this initiative supports the government's economic objectives, enhances job creation, and supports the long-term sustainability of the resource industry. Additionally, the JMEI benefits the broader economy through increased exploration activities, which can lead to significant mineral discoveries and bolster Australia's position in the global mining market.

The study also suggested several improvements for the JMEI, including increasing awareness and education about the program, increasing the amount and lifetime of credits, and transitioning to a more equitable allocation system.

Assessing the JMEI’s contribution to Australia’s economic growth

Our study found that the JMEI has had a notable impact on Australian Government revenue. The expected increase in revenue, which includes personal tax and company tax minus the tax forgone through the JMEI tax offset, is estimated to be $391 million in present value terms.

The JMEI operates by providing tax offsets to exploration companies, effectively reducing the government's immediate tax revenue. However, this initial revenue loss is outweighed by the subsequent increase in company and personal income tax generated from the development and operation of new mines.

The success of the JMEI has been moderate, with an increase in expenditure that may have translated into higher market capitalisation or overall success for the companies involved. Additionally, the JMEI has a multiplier effect on the broader economy, as increased exploration activities can lead to significant economic benefits beyond the immediate mining sector.

The economic benefits of the JMEI extend beyond the mining sector, particularly in terms of Gross Domestic Product (GDP) impact. The additional mining activity spurred by the JMEI is expected to produce $5.9 billion in minerals in present value terms. This activity is projected to contribute an additional $769 million to GDP in present value terms.

Extending and increasing the JMEI could amplify its positive impacts on the economy. By providing more support to exploration companies, the program could attract additional investment, leading to greater exploration activity and potentially significant mineral discoveries. This, in turn, would boost GDP and government revenue, further solidifying Australia's position in the global mining market. Expanding the JMEI offers a promising opportunity to enhance its already beneficial effects.

Recommendations to improve the JMEI

As part of the study, we surveyed 53 exploration companies to understand their perceptions of the JMEI. This, along with our research, highlighted several opportunities that could be implemented to improve the success of the JMEI.

One significant opportunity is the implementation of a mandatory reporting mechanism. This would replace the current delayed and underutilised voluntary reporting system managed by the Department of Industry, Science and Resources (DISR). A mandatory reporting mechanism could provide a more accurate and timely understanding of the JMEI's impact on capital raising and exploration activity.

Improving the understanding of the JMEI's effects on exploration would enable more informed decision-making and allow for timely adjustments to the program. This could lead to more effective allocation of resources and better support for exploration companies, ultimately enhancing the overall success and impact of the JMEI.

The strongest recommendation made by businesses surveyed was to improve awareness and education about the JMEI, both among exploration companies and their investors. This would allow businesses to make better use of it, supporting the mining sector’s contribution to Australia’s future prosperity. Enhanced awareness could drive more participation and investment, further boosting the sector and leading to significant economic benefits for the entire economy.

To explore the full report and gain deeper insights into the recommendations for improving the JMEI, visit the AMEC website.

How BDO can help

BDO’s natural resources experts combine deep industry knowledge with a global perspective to help clients effectively navigate the complexities of the natural resources sector. For more information on how we can support your needs in the natural resources sector, contact us.