Mining giants BHP Billiton and Rio Tinto have reached a royalty agreement with the West Australian government for their iron ore operations in the state.
Mining giants BHP Billiton and Rio Tinto have reached a royalty agreement with the West Australian government for their iron ore operations in the state.
The two mining companies have agreed to pay iron ore royalties at all their Pilbara mines at a rate of 5.625 per cent for fines and 7.5 per cent for lump.
The new rates will apply from July 1 this year and will add $340 million to state revenue in 2010-11 and $1.06 billion over the next four years..
BHP boss Marcus Kloppers signed the agreement with the state government last Thursday.
Rio boss Tom Albanese signed the agreement this morning.
Premier Colin Barnett said he expects to legislation to chance the royalty rate for the two companies will be tabled in parliament this week.
A one-off combined payment of $350 million will also be made by the companies to the WA government.
Mr Barnett said the $350 million will be put into a special trust account to pay for a new children's hospital in Perth.
The agreement allows BHP and Rio to intergrate their production in the Pilbara where they will be able to share railway and port facilities.
Mr Barnett said the agreement was of great significance to the state.
Full statement from the state government below:
After 12 months of discussions the State Government has reached an historic new agreement with BHP Billiton and Rio Tinto about iron ore royalties for fines and the development of the Pilbara iron ore industry.
From July 1, BHP Billiton and Rio Tinto's royalty rates will change from 3.75 per cent to 5.625 per cent to bring them into line with other iron ore producers and the companies will be able to integrate their Pilbara operations.
This will apply to all production by the companies and will generate an additional $340million in State royalties for the 2010-11 financial year.
Under the Heads of Agreement signed today the companies will also make a joint one-off payment to the State of $350million.
Premier Colin Barnett said modernising the State agreements reflected the maturity of the iron ore industry in Western Australia.
"This is a win-win deal which gives the companies greater flexibility to integrate their operations and ensures a better return to the community," Mr Barnett said.
"Western Australia's iron ore industry has come a long way since the first State agreements were signed with Rio Tinto and BHP Billiton in the early 1960s.
"The old agreements recognised the pioneering role the companies would play in the region and offered a discounted royalty rate to acknowledge that fine ore was not a valued product in the market at that time.
"Since then the companies have made significant investment in dual purpose infrastructure in the region, including developing towns, roads, rail and ports.
"Today, fine ore has become the main ironmaking feedstock, the Pilbara is known as a world-class iron ore producing area and the industry in Western Australia is well-established with 10 producers and at least 80 companies actively exploring for iron ore.
"The success of the 1960 agreements in developing the Pilbara means the rationale for discounted royalties is no longer relevant and the time has come to update them."
The Premier said legislation to formalise the royalty rate changes would be introduced this week.
The companies would make the additional one-off payment of $350million to consolidated revenue when further legislation to finalise the changes received royal assent.
"I'm very pleased to confirm the $350million one-off payment will be placed in a special account for the new Children's Hospital, which is due to begin construction in 2012 and due to be completed by 2015," Mr Barnett said.
The new royalty rates are forecast to generate an additional $340million in 2010-11 and $1.06billion over the next four years.
"Some of the additional revenue generated by the increased royalty rates will also go towards the Children's Hospital so we can nurture and care for the State's most precious resources," Mr Barnett said.
"We expect these contributions will fully fund this important facility."
The Premier thanked the companies for their willingness to engage in good faith during negotiations with the Government over the past 12 months.
"Today's successful outcome follows considerable and often tough negotiations and will give the companies the ability to share port and rail infrastructure and blend iron ore which will keep them competitive on international markets," Mr Barnett said.
"This presents a new chapter in the iron ore industry and will lead to more efficient and productive iron ore operations and spur further investment in the Pilbara."
Full Rio Tinto announcement below:
The Western Australian Government, Rio Tinto and BHP Billiton today announced that they have signed a Heads of Agreement that will enable greater flexibility and efficiency in managing their iron ore mining operations and infrastructure in the Pilbara.
Rio Tinto and BHP Billiton have agreed to pay iron ore royalties at all their mines at a rate of 5.625 per cent for fine ore and 7.5 per cent for lump ore. These royalties, which will apply from 1 July 2010, are in line with the rates currently specified in the Mining Regulations 1981.
The parties have also agreed to a set of State Agreement amendments that will promote greater efficiency and flexibility for Rio Tinto's and BHP Billiton's current operations, such as the ability to share infrastructure and blend ore across their networks.
These amendments are not dependent on their proposed production joint venture proceeding.
In recognition of the value that these State Agreement amendments will generate and the need to support our local Western Australian communities, it has also been agreed that the parties to the relevant State Agreements will make a one-off, combined payment of $350 million to the State Government's Consolidated Revenue Fund.
Premier of Western Australia, The Hon. Colin Barnett MLA, said: "This outcome is the result of long and detailed negotiations conducted in good spirit over the past year. It is important for a number of reasons: it provides the people of Western Australia with increased value from this State's resources and it creates a level playing field for all iron ore producers in Western Australia."
Sam Walsh, Executive director, Rio Tinto and Chief executive of the iron ore group, said: "This result has emerged from an extensive period of consultation and negotiation, and will deliver profound benefits for our iron ore business, our local Pilbara communities and the State in general.
This agreement continues Rio Tinto's drive for operational efficiency, which is important in an increasingly competitive global market. It will also assist us for when we are able to launch the next phase of our Pilbara expansion plans."
The variations to Rio Tinto's and BHP Billiton's State Agreements are subject to the approval of co-venturers under our existing joint venture arrangements and the passage of ratifying legislation by the Western Australian Parliament.
Full BHP Billiton statement below:
BHP Billiton today announced that it had signed a non-binding Heads of Agreement with the Government of Western Australia to amend Iron Ore royalty rates payable to the State effective 1 July 2010.
Based on this agreement, the State will proceed with amendments to the State Agreement Acts covering operations managed by BHP Billiton, to require payment of royalties on iron ore shipments at the rates specified in the WA Mining Regulations. Royalty rates will increase from 3.75 per cent of sales revenue to 5.625 per cent for Fines and from 3.25 per cent to 5.0 per cent for Beneficiated Ore.
The Lump royalty will be 7.5 per cent, which is already the prevailing rate for most of the Lump ore produced from projects managed by BHP Billiton. The rates as amended will apply to all existing operations and future projects covered by the State Agreements.
Additionally, BHP Billiton and the Government of Western Australia have agreed to make amendments to various State Agreements to:
permit sharing of infrastructure and blending of products across the networks operated by BHP Billiton and Rio Tinto; and
modernise other provisions of the State Agreements.
These changes to the State Agreements will enable BHP Billiton's existing iron ore operations to operate more efficiently. They will also help facilitate the proposed West Australian Iron Ore Production Joint Venture between BHP Billiton and Rio Tinto, which is still subject to approval from regulators and shareholders.
While the State Agreement modifications relating to infrastructure and modernisation are not conditional upon the finalisation of the Production Joint Venture, the resulting flexibility to blend product and share infrastructure would facilitate the capture of synergies which are the main driver for the Production Joint Venture proposal.
The proposed removal of historical royalty concessions has been subject to discussions with the State Government for some time. In recognition of this, and as a way of sharing the value that the variations to the State Agreements are expected to generate, the parties to the relevant State Agreements will make a contribution totalling A$350 million to the consolidated revenue of the State.
Marcus Randolph, Chief Executive Ferrous and Coal, BHP Billiton, said: "The ability to blend iron ore from any of our mines, and the flexibility in the use of all rail and port infrastructure, will be major enablers for our operations. This will improve our operating efficiency and we are pleased to be able to share the gains from this enhancement with the people of Western Australia."
The Premier of Western Australia, The Honourable Colin Barnett MP, said: "This outcome is the result of long and detailed negotiations conducted in good spirit over the past year. It is important for a number of reasons: it provides the people of Western Australia with increased value from this State's resources and it creates a level playing field for all iron ore producers in Western Australia."
The State Agreement modifications relating to infrastructure sharing and modernisation are subject to the approval of co-venturers under BHP Billiton's existing joint venture arrangements, and the passage of ratifying legislation by the Western Australian Parliament.