THREATS of a hike in WA mining royalties have caused several mining companies to band together, joining the Gold Royalties Response Group (GRRG) as the government reviews the state’s royalty rates.
The GRRG was originally formed in 2010 and recently re-united with six new allies, aiming to “communicate the detrimental impact a royalty rate rise would have on WA’s gold industry and related stakeholders for consideration in the state government’s review of mineral royalty rates”.
The group now includes Doray Minerals, Evolution Mining, Gold Fields, Newmont Asia Pacific, Northern Star Resources, Norton Gold Fields, Ramelius Resources, Regis Resources, Silver Lake Resources and St Barbara.
Gold miners currently pay 2.5 per cent of the value of their resource in the ground, for a combined $5.1 billion in mineral and petroleum royalties in 2012.
At the current rate, the industry would contribute $173 million to the state government in the 2016 financial year.
In mid-August, the WA Government announced the beginning of a formal public consultation on the state’s mineral royalty rates, releasing the terms of reference and a stakeholder consultation paper for the Mineral Royalty Rate Analysis.
The analysis, which was limited to minerals and would not include petroleum, would “examine the ongoing efficacy and appropriateness of the policy that revenue returned from royalties is broadly equivalent to 10 per cent of the total mine-head value of the mineral”, the State Development department reported.
“If a benchmark based on 10 per cent of mine-head value is retained, [the review would] examine the extent to which the current royalty rates structure produces revenue that differs from the benchmark, and identify appropriate adjustments that would take revenues closer to the benchmark.
“If an alternative benchmark is proposed, [the review would]examine royalty rate structures that would achieve the new benchmark; address any anomalies identified in the royalty structure; and produce a report for government, including recommendations.”
Recent media reports had claimed that Premier Colin Barnett indicated a significant rate increase as part of the review, while Labor Mines and Petroleum spokesman Bill Johnston told media he believed the rates would be raised by 25 per cent across the board.
The state government stated that the review was aimed at identifying anomalies in the existing royalty rates policy. It expected the review to yield an additional $180 million per year, but had not confirmed which sector would incur the cost.
“Royalties are vital to the state’s ability to provide the services and infrastructure West Australians expect,” Mr Barnett said.
“It is important that royalty rates deliver a reasonable return to the community without discouraging production or acting as a disincentive to new investment.”
Mines and Petroleum minister Bill Marmion said the royalty payment was designed to deliver a return to the state equivalent to about 10 per cent of the mine-head value of a resource. “For most producers, mineral royalty rates operate on a three-tier system reflecting the degree of processing involved in production,” Mr Marmion said.
He said the current system also took into account historical considerations such as rates negotiated as part of major project agreements.
Mr Barnett said the Mineral Royalty Rate Analysis would focus on identified anomalies in the current structure, rather than consider major changes to royalty arrangements.
The GRRG was able to successfully stop a royalty rate rise in 2010 and group spokesperson and Doray Minerals managing director Allan Kelly told media that he hoped they could do it again.
“With low margins already hurting the industry, and a series of closures and redundancies in the past few months, a royalty increase would further impact local communities including Kalgoorlie, Southern Cross, Meekatharra, Westonia and Mount Magnet through additional job losses and cuts to valuable services,” he said.
“It will also seriously undermine future investment in the industry against a backdrop of major companies exiting gold projects in Western Australia.”
Mr Kelly said GRRG was preparing a submission for the state government’s review of mineral royalty rates due at the end of October.
Mr Johnston said that such a large increase would put huge pressure on a sector that was already struggling, noting the Collie coal industry as one that would be particularly affected.
“Well, Mr Barnett made great play about fighting the Federal Government’s mining tax and yet he’s got a plan to put up mining royalties by 25 per cent,” he said.
“Mr Barnett has to explain how he’s going to protect jobs in the coal industry in Collie.”
Mr Marmion hit back at the claims, stating he had no plans to increase mining royalties by 25 per cent, labelling Mr Johnston’s claims as “mischievous rumours”.
The Mineral Royalty Rate Analysis would involve a three-year period of consultation, ending before 1 July 2015.