Proposed changes to the federal government’s Research & Development tax incentive will hurt ASX-listed small cap miners and potentially stop projects from going ahead, according to the boss of an emerging rare earths producer.

Earlier this year, federal treasurer Scott Morrison flagged the overhaul of the R&D tax incentive scheme, capping annual refunds at $4 million for companies with less than $20 million turnover.

The government has now released draft legislation for public comment, saying it will allow “better targeting” of the R&D tax incentive.

“We are committed to backing R&D investment and the economic opportunities and jobs it generates,” Mr Morrison said.

“At the same time, we need to make sure that the investment of taxpayers’ money is well targeted by encouraging companies to do more, and not just be rewarded for R&D they would have conducted without an incentive.”

But Northern Minerals (ASX:NTU) chief George Bauk says the policy is not good news for miners.

“Many people probably didn’t even think about it and didn’t understand the connectivity to the mining industry,” Mr Bauk said at an industry event last week.

“Unfortunately, with tough times they are cutting the R&D. We’re talking about [science, technology, engineering and maths], we’re talking about the future and unfortunately some policy makers aren’t connecting all the dots.”

Northern Minerals is almost finished building a 60,000-tonne-per-annum heavy rare earths pilot plant at its Browns Range project in Western Australia.

Mr Bauk said if the government had cut the R&D rebate 12 months earlier, Northern Minerals wouldn’t be about to go into production.

“One of the big contributors to that project there is funding from the federal government research and development,” he said.

Mr Bauk urged everyone in the mining industry to lobby local politicians.

“Start speaking passionately about how important R&D is because there will be projects that we put on hold because we don’t have R&D available to us,” he said.

Northern Minerals expects to start shipping dysprosium from its Browns Range project in the September quarter.

Dysprosium is an additive used in the permanent magnets required for the motors in electric vehicles and wind turbines. The heavy rare earth allows the magnet to retain its charge at a higher temperature.

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