WA gold royalty rate increase to cost 3000 jobs: CME

Kalgoorlie's Super Pit.

The Western Australian Government’s plan to raise its gold royalty rate by 50 per cent will lead to almost 3000 jobs being lost, according to economic modelling by the WA Chamber of Minerals and Energy (CME).

WA’s Labor Government announced the proposed hike in its State Budget last month. The planned increase, to be introduced from January 1 2018, would see the current 2.5 per cent rate rise to 3.75 per cent when the gold spot price is above $1200 an ounce.

CME modelling revealed that over 10 per cent of the 25,000 people who work in the state’s gold sector would lose their jobs due to the proposed royalty hike.

The modelling reviewed the operations of 12 companies, which produced 80 per cent of WA’s gold production at 27 mines in 2015-16.

It found that – at current gold prices – five mines are operating on a margin of 10 per cent, while at a price of $1400 an ounce another five mines would be operating on a margin of less than 10 per cent.

The royalty rate increase of 1.25 per cent will absorb around $125 million of industry cashflow a year, the modelling also revealed.

This additional cash expense, according to the modelling, will be funded variably from reductions in payroll, the purchase of goods and services, free cashflow, cash-backed retained earnings, discretionary capital and investment and/or discretionary exploration.

Saracen Mineral Holdings managing director Raleigh Finlayson said the results confirmed that repeated warnings from the gold sector about the damaging impact of the royalty increase were not empty rhetoric.

“Treasurer Ben Wyatt said he wanted to see the numbers from the gold industry. Well here are the numbers, and they are devastating,” Finlayson said.

“Up to 3000 jobs to go from WA gold mines and a further 2000 if the gold price were to drop to $1400. This does not include the flow on impact on the many small businesses and suppliers that support the sector.

“Thousands of men and women out of work due to an ill-informed, ham-fisted decision by a Labor Government which was elected on the promise of putting jobs first.”

The royalty rate increase is being imposed in a climate of declining profitability at a corporate level and where a significant number of existing mines are marginal, the Chamber added.

CME chief executive Reg Howard-Smith said the economic modelling demonstrated the Labor Government had failed to do its homework to understand the impact of the 50 per cent royalty increase.

“The analysis demonstrates, not only are jobs at risk, but so too is government revenue. The five mines at risk at the current gold price currently pay $46.5 million of royalties. If they are forced to close by the government’s budget action, the government will lose this revenue,” Howard-Smith said.

WA Premier Mark McGowan has since dismissed the findings of CME’s modelling, saying he does not believe any jobs will be lost in the gold industry because of the tax hike.

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