Barry Fitzgerald, Quote, May 3 - "THERE should be no complaints...

Barry Fitzgerald, Quote, May 3 - "THERE should be no complaints from the mining exploration companies about the Henry tax review. They did not get the long promised flow-through share scheme but they got something better.

Instead of having to pass on to investors the exploration tax deduction the company would not be able to use because of its tax-loss status under a flow-through scheme, they are to get a direct 30 per cent rebate from July 2011 for each dollar spent in the hunt for the next mine development.
Spend $1 million on exploration as a loss-making explorer and the Australian taxpayer, via the federal government, will kindly send a rebate cheque for $300,000. It is open-ended too, costing the taxpayer an estimated $1.1 billion in its first two years.

Advertisement: Story continues belowThat's a lot of money for an industry that in reality does not need any help. While the case for exploration tax benefits has been built on the idea that the explorers struggle to raise equity funds, the truth is that equity funding has always been there for the right sort of people, with the right sort of project in the right sort of location, and with the right sort of prevailing commodity prices and demand outlook.

The only explanation for Canberra's generosity can be that the Rudd government is so worried about the backlash in marginal country seats in the mining states of Western Australia and Queensland to the $5 billion-a-year resource rent tax hit on the miners, it had to find some favour where it could.

But the generosity could backfire, given the potential for some serious rorting and the cost pressures the so-called resource exploration rebate (RER) will create as service companies and consultants to the exploration sector ratchet up their prices to capture some taxpayer largesse. There have to be as yet unforeseen unintended consequences to this.

On a more positive note, the RER means that the freeze in director fees for exploration companies that was applied during the global financial crisis is well and truly over.

That's good news for the restaurant trade and for BMW's sales figures.

BACK in February, Garimpeiro reported on the excitement surrounding the 2010 drilling programs of a bunch of explorers hoping to repeat the success Sandfire Resources (ASX: SFR) has had with its high-grade DeGrussa copper/gold discovery in Western Australia

One of those was Alchemy Resources (ASX: ALY) which was trading at 64 a share at the time, ahead of the planned April start to the drilling program on its Magnus tenements, beginning on the eastern boundary of Sandfire's ground and extending westwards.
Alchemy traded on Friday at 62. So the punters are waiting on first results from the Magnus work before getting too excited over the stock. Which is fair enough.
But overlooked by Garimpeiro back in February was that a drilling campaign at Alchemy's Hermes gold project was to be kicked off before the Magnus work. And by Garimpeiro's reckoning, the first results from the program should just about be due. They could be worth watching out for, given it can be argued that there is at present nothing in Alchemy's share price to account for Hermes.
What is known at this stage is that Alchemy acquired Hermes, north-west of Meekatharra, in June 2008. It came with a stock-exchange compliant gold resource of 1.7 million tonnes, grading 2.4 grams of gold a tonne (131,000 ounces).
An initial infill drilling program by Alchemy gave it the confidence to commit to the 2010 drilling program in the expectation that it would come back with results to underpin an eventual upgrading of the Hermes resource estimate and, by extension, its development potential."

The rest is now history . FYI. DYOR GL.