WESTERN Australian miners are gearing to fight off attack from two sides, as both state and federal governments consider drastic changes to the way royalties on mineral production are calculated.
WESTERN Australian miners are gearing to fight off attack from two sides, as both state and federal governments consider drastic changes to the way royalties on mineral production are calculated.
At the federal level, the Henry Tax Review is rumoured to recommend the scrapping of all state-based royalty regimes in favour of a profit-based resources rent scheme similar to that which applies to the offshore oil sector.
Instead of a revenue-based royalty, miners would be taxed on profits once they have recovered their initial investment.
Meanwhile, the WA government is reviewing state royalty rates, with Premier Colin Barnett telling parliament last month there was a widespread view that “mining companies are ... not paying enough”.
Mr Barnett has long sought to scrap concessional rates granted under state agreements with iron ore giants BHP Billiton and Rio Tinto 40 years ago.
But all other commodities are also in the crosshairs as the government desperately tries to avoid going into deficit in its next state budget.
Though neither Canberra nor the state government has formally confirmed change is likely, industry fears the worst and is demanding it be consulted beforehand.
Gold producers are especially nervous amid talk the WA government may double the royalty on gold production to 5 per cent of revenue.
“Normally where there’s smoke, there’s fire,” Les Davis, managing director of gold miner Silverlake Resources said at the Paydirt Gold Conference this week.
Silverlake is one of nine gold miners behind the Gold Royalty Response Group formed to fight the mooted royalty hike.
Mr Davis said raising gold royalties would seriously affect the viability of many WA gold miners and “undermine investment in WA gold companies at a time when the junior end of the sector is experiencing its first revival in more than 20 years”.
About 80 per cent of the state’s royalty take comes from iron ore production under state agreements, which may only be changed with the approval of the relevant miner. Yet virtually none of WA’s gold production is covered by state agreements, leaving gold miners most vulnerable to change.
Association of Mining and Exploration Companies chief Simon Bennison said that would result in lots of pain for little gain, given gold royalties were forecast at $190 million compared to the $2.1 billion expected from the iron ore sector this year.
“So I think it ... is really short-sighted,” he said, noting that royalty income had risen almost 137 per cent since 2004 under the existing regime.
Mr Bennison warned ad-hoc changes to the system would not only increase costs to producers, but would also discourage future investment in the sector and ultimately erode royalty returns.
The WA Chamber of Minerals and Energy, which supports the existing regime, also believes a profit-based federal resource rent tax would be disastrous, arguing only a revenue-based system can provide regular annuity-style income even in a downturn.
Mines Minister Norman Moore pledged to take into account “the potential for further distortion” created by any changes to royalty rates.
