Gold industry cries foul on royalties increases

The gold industry in Western Australia has launched a campaign that appeals to the human side of the industry, in the face of potential for a royalties hike by the end of the year.

The Gold Royalties Response Group (GRRG) are calling for support from the community to participate in petitioning the government to refrain from increasing royalties paid by the gold mining sector in WA.

Les Davis, MD of Silverlake Resources and spokesman for the GRRG launched the new campaign, including radio advertising, called #heartofgold at the Diggers and Dealers Mining Forum in Kalgoorlie today.

He was joined by Terry Moylan from Norton Goldfields, Matt Judkins from Delloitte, and Simon Bennison of the Association of Minerals and Exploration Companies.

“We have worked to make sure that state government understands the marginal nature of our business, and the damage that would result from any increase to the royalty rate we are currently paying,” Davis said.

“Mining in WA is not all about iron ore, gold mining is a very marginal business, and we’ve already seen some mine closures due to the retraction of the gold price point.

To remain sustainable we’ve got to ensure that anything that adds to the bottom line, any increasing costs, quite simply things will happen, the marginal ounces that we’re mining today, some of those will not ever be mined, and that has a knock on effect.

“We cannot continue to be squeezed on our margins.”

“The all-in sustaining cash cost for our peer group is around $1100, and the price of gold today is $1400, so we make $300 an ounce, and you need to mine a Haul-pac full of product to get a golf ball-sized gold equivalent.”

Davis said there are 29 gold mines in WA, supporting 15 communities, and employing more than 25,000 people, which would be affected by increases to the gold royalty rate that may be proposed by the WA state government as the result of a review, which will be presented to mines minister Bill Marmion by the end of the year.

“Our industry pays more than $300 million in royalties and taxes to the state government each year to help build schools, hospitals, roads and police stations,” he said.

“Our message is a simple one- Gold mining keeps us all strong.”

Matt Judkins from Deloitte, which was commissioned by GRRG to investigate the issue, explained the potential impact of a royalty change from 2.5 per cent to 5 per cent, including investment of capital in the exploration sector.

“We measured three main things: What would be the impact on exports, what would be the impact on employment, and what would be the impact on economic activity,” he said.

“The results are relatively negative

According to Deloitte, by 2016/17 employment would drop by about 550 full time jobs, gross state product would drop by $240 million by 2016/17, and there would also be a drop of $200 million in exports.

Presently gold accounts for $9 billion in exports from Western Australia.

AMEC CEO Simon Bennisson said he had been closely involved with the economic modelling presented by GRRG, and that any royalty hike would seriously affect the international competitiveness of the WA gold sector.

“6 to 7 per cent of capital raised last year went out of Australia in the exploration sector, so we’re very sensitive to cost pressures put on the Australian industry, so the last thing we need is an increase in royalties,” he said.

“Any impact on the cost structure of this industry would have repercussion that flow right through the community, particularly in the service industries and other businesses supported by them in the community.

“We are 133rd for tax competitiveness internationally, while our resource competitors are in the 30s and 40s.

Bennison said he had seen a number of marginal gold projects struggling with increases to the cost of production, with increasing strip ratios and cutoff grades.

“We’re very keen to ensure the public at large, right across Western Australia, are aware of the implications of any increase in royalties, and to understand what the industry is returning to the community.”

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