Three WA iron ore producers have missed royalty payments, putting about 1000 jobs at risk and increasing pressure on the Cook government to support marginal operations.
The missed payments have put Mines Minister Daniel Pastorelli under pressure to disclose how much is owed and what relief has been granted to the companies.
The default has also raised questions about whether the mines remain viable and the operations’ financial position.
Under WA’s royalty regime, non-payment can trigger forfeiture action or a financial penalty in lieu of forfeiture, making missed payments a potentially serious warning sign for miners already battling tighter margins.
At a parliamentary estimate hearing in May, officials said missed royalty payments were referred by Treasury and Finance Department to the Mining Department, triggering forfeiture action under the Mining Act.
But the officials also warned it could be difficult to pin down the total overdue royalties because forfeiture proceedings can be lengthy and miners may clear debts during the process. Then mines minister David Michael committed to providing Parliament with the total outstanding balance.
Cracks emerge
The financial pressure is exposing the divide between diversified iron ore majors able to withstand commodity and cost volatility and smaller producers operating with thinner profits.
AMR analysis suggests the difficulties reflect a combination of sector-wide pressures and company-specific problems.
Without the scale advantages of the majors, smaller miners are feeling the squeeze as iron ore slips below US$100/t and high costs push margins towards breaking point.
And, if those pressures continue production cuts could the most palatable outcome for some of these smaller players.
The WA Nationals questioned whether the Minister had a clear strategy to support the producers, with Shadow Mines Minister Lachlan Hunter arguing temporary royalty relief could help viable junior miners weather short-term financial pressure and protect regional jobs.
“The Nationals have long recognised that temporary royalty relief can be an appropriate measure to support junior miners through difficult market conditions, protect regional jobs and maintain production,” Mr Hunter said.
“Simply granting extensions without addressing the underlying pressures facing these businesses is not a long-term economic strategy.”
Mr Hunter said the three producers supported about 1000 WA jobs and called on the government to explain what measures it was taking to keep their operations running.
The debate centres on whether temporary government relief can help viable operations through a cash flow squeeze, or whether the affected producers face deeper financial problems.
Investors will be watching whether the affected producers can restore positive cash flow, refinance or raise fresh capital before weaker margins force production cuts, asset sales or care and maintenance.
For the government, the questions are simpler: how much royalty revenue remains outstanding, what concessions have been granted and whether it expects the money to be fully recovered.
Mr Pastorelli’s office has been contacted for comment.
