West Australian Premier Colin Barnett has hit out at Rio Tinto and BHP for flooding the market with iron ore, stating the business tactic may lead to a royalty hike.
Speaking at a press conference, Barnett announced plans to cut 1500 public sector jobs, blaming the move on the fall in iron prices and the GST.
Lashing out at the two major miners in the state, Barnett questioned their strategy of increasing supply into a sluggish iron ore market.
"This seeming strategy of the two major producers to flood the market (with supply) and force the price down, I mean, remember who your landlord is – that's hurting Western Australia," Barnett said.
"I will just make the point, you can have your corporate strategy, but there's also a sense of corporate social responsibility.
"And while you are pursuing your business strategy – which I tend to think is flawed – you are actually hurting the host State, the State that provides the iron ore and generates most of the wealth of Rio Tinto and BHP at a world scale."
This would increase annual output to 275 million tonnes per annum by the 2017.
Rio Tinto is already producing about 290 million tonnes of iron ore a year and has plans to increase this to 330 mtpa by 2015.
The other major miner in the region, Fortescue Metals Group currently produces 155 mtpa.
The companies have been blamed for oversupplying the market with iron ore which has led to lower prices.
The price of the steelmaking ingredient has fallen by more than 40 per cent this year, with predictions it could fall further as demand from China wanes.
The low price is also sending some miners broke, with high-cost producers forced to shut their operations as they become uneconomic.
For the state of WA, mining royalties make up 20 per cent of revenue and so any further fall in its price could lead a black hole in government coffers, which has already lost around $2 billion as a result of the price slide.
Barnett said it’s ‘flawed’ for the big miners to try “manage the world price of a commodity”.
“When anyone has tried that, whether it's been minerals or agriculture or anything else, it usually ends it tears," Barnett said.
"Right now there are tears within the West Australian government."
Barnett said he would ‘hate’ to introduce a hike in the royalty rate but said if the downtrend in iron ore pricing continues the royalty rate would become an issue.
On Monday BHP iron ore boss Jimmy Wilson said the royalty rate should stay as is, SMH reported.
"I think that one of the benefits of what we're doing is we're actually increasing the volume,” Wilson said.
“So there's two components to this, there's the absolute rate, or the absolute royalty rate, and the other side of it is the volume.
“And we are increasing our volumes, Rio are increasing their volumes, FMG [Fortescue Metals Group] are increasing their volumes; so the government is getting a kicker as a result of those increased volumes."
"Curtailing production would simply create a void that would be filled by other producers and new starters," Harding said.
"Our analysis indicates there are 32 competitive projects that could be incentivised if we were to withhold volume."