Oops! Has the Resources Minister, Martin Ferguson, just let the tax-cat out of the bag by admitting the obvious, but previously denied fact, that "one size does not fit all" in the mining super-tax debate?
Oops! Has the Resources Minister, Martin Ferguson, just let the tax-cat out of the bag by admitting the obvious, but previously denied fact, that "one size does not fit all" in the mining super-tax debate?
If Ferguson did acknowledge that some mines are different from others, as claimed in reports of yesterday's meeting of the Labor Party's federal caucus in Canberra, then he has done something unusual, and important.
He has told the truth, an admirable quality in a politician. He has also just made life all but impossible for the Prime Minister, Kevin Rudd, and he might have started a process which will kill the super-tax.
Ferguson's simple statement, blindingly obvious to anyone with rudimentary knowledge of mining, cuts to the heart of the debate because the people who designed the super-tax failed to understand that every mine is different.
Academics, and the 30-something members of Rudd's inner circle, might imagine that all mines are exactly as Mark Twain so poetically put it a century ago: "a mine is a hole in the ground with a liar on top".
Some mines are the property of liars but even those people know that their hole in the ground is different from the hole owned by the neighbouring liar.
Once the politicians in Canberra understand that point they are one step away from realising that every mine requires a different approach to its discovery, design, operations, employment levels, and tax rate, if it is to be developed, or stay in business.
The super-tax, praised by Rudd as an "elegant solution" to Australia's big budget deficit, cannot cope with those differences, but once the fiddling starts with the rate, or who pays it, then a can of worms will have been opened with every politician in every marginal seat demanding special tax treatment for mines in his electorate.
Consider a few examples. Liquefied natural gas projects using coal-seam methane as their feedstock are being acknowledged as requiring a reduced tax rate to justify their multi-billion dollar development cost. But, if that happens why shouldn't all onshore gas projects get special treatment because methane is methane whether it originates in coal seams or from conventional sources.
In iron ore, low-grade magnetite, of the sort to be mined by SinoSteel, Gindalbie and Grange Resources, has been earmarked by the academics as being the same material as the haematite and pisolite mined by BHP Billiton and Rio Tinto.
All the ores contain iron but that's where the similarity ends. Haematite and pisolite, which grade 55% iron and more, are "dig and deliver" material. Magnetite is also dug up, but it grades around 35%. It has to be extensively processed and upgraded to a material suited for conversion into iron pellets. Is the value-added stage mining, or processing?
Another favourite, and one the Canberra boys have never dreamed of, is that mines "change" with Greenbushes the classic. Once it was a tin mine with associated tantalum an unwanted and costly by-product for which penalties where applied. Since the mobile telephony revolution started, and tantalum proved to be a near-perfect "capacitor", Greenbushes has become a tantalum mine with tin the by-product.
The list of variations is infinite because every step of the mining process is different. Some mines are labour intensive (the narrow-vein nickel mines of Kambalda). Some are capital intensive (Pilbara iron ore mines). Some require vast downstream infrastructure such as railways and ports. Some, such as goldmines, send their finished product out by air.
Ferguson appears to have told the truth. All mines are different. What he could have added is that the original super-tax plan, hatched in secret, is now looking like the Curate's Egg, "partly good, partly bad, with the end result being that the entire tax-egg is rotten".
As an interesting diversion from tax it is worth noting the rewards from mining remain substantial, as one of Rio Tinto's most senior executives is understood to have discovered. Sam Walsh, boss of the iron ore division, is said to be in the process of moving to a new home in the leafy western suburb of Peppermint Grove having splashed out around $10 million for the privilege. A spokesman for Sam, said in a request for confirmation of the property purchase, that: "I suspect you won't be surprised by this - (Sam) declines to comment".
