A Western Australian Government decision to increase royalties for gold producers in its latest State Budget has angered the mining industry, which fears the move will close mines and cost jobs.
The hike, announced yesterday, includes two changes to gold royalty arrangements, which are aimed at helping the government “with the difficult task of repairing the state’s finances”.
It will impact most of the gold miners which operate in Australia, including international companies like South Africa’s Gold Fields and Anglo Gold Ashanti, and Super Pit partners Newmont Mining and Barrick Gold.
Australian-based miners, including Newcrest Mining, Northern Star Resources and Evolution Mining, will also be hit by the royalty hike.
A tiered royalty rate will be introduced from January 1 2018, according to the WA Government, with the increase to be determined by the Australian gold price.
The current 2.5 per cent rate will continue to apply for each month when the gold spot price – averaged over a month – is $1200 ($US966) an ounce or less. An increased rate of 3.75 per cent will apply, however, when the gold spot price is above $1200 an ounce.
Based on the current gold price, which sat at $1676.24 an ounce overnight, the increased rate will add about $20 an ounce to the total royalty payment.
In addition, the royalty exemption for the first 2500 ounces of gold produced each year will be removed from July 1 2018 for miners who produce more than that amount.
Northern Star chairman Bill Beament said it was disappointing to see the McGowan Government slug gold miners with a 50 per cent increase in the gold royalty rate.
“WA’s gold miners cannot pass on these additional costs. This means they will have no choice but to cut costs elsewhere, jeopardising jobs, exploration expenditure and future growth opportunities,” Beament said.
“The adverse impact of the increased tax on employment, particularly in remote areas, and exploration, which drives economic and employment growth over the longer term, undermines the McGowan Government’s claims to be the party of jobs and opportunities for West Australians.
“Rather than helping to solve WA’s economic problems, this increased tax will simply make matters worse by imposing another hefty cost on a local industry which is playing a vital role in creating local jobs and driving economic growth for the benefit of the whole state.”
The Chamber of Minerals and Energy of Western Australia (CME) also criticised the government’s move, saying it was “disappointing and shortsighted”.
CME acting chief executive Nicole Roocke said the decision would have a devastating impact on the state’s gold sector, which may be forced to close mines and cut jobs.
“To introduce such austere measures at a time when the gold sector is just experiencing an improvement in production and sales is unjustified, especially when the majority of royalties raised from this increase will eventually be redistributed to other states through GST after four years,” Roocke said.
“Gold companies are a significant contributor to WA Government by way of royalties and account for about $238 million, or 5 per cent, of total resources industry royalties.
“The gold sector employs 25,000 people – around 23 per cent of the total WA mining industry workforce – and many of these jobs may now be put at risk due to this royalty increase.”
Roocke said the state government should be encouraging investment instead of hampering it with higher royalties and taxes.
WA Treasurer Ben Wyatt justified the government’s decision to break an election promise that it wouldn’t lift gold royalties by explaining the state’s rate was currently at the lower end of those levied in Australia.
He said the royalty hike, of an additional $20 an ounce, was a modest increase for the industry.
“Introducing a tiered gold royalty rate provides a safeguard against future gold price reductions by ensuring producers will pay the current 2.5 per cent royalty rate if the gold price falls to $A1200 per ounce or below.
“The task of Budget repair needs to be shared across the state. Everyone will need to share the burden to help fix the mess left behind by the Liberal and Nationals.”
Association of Mining and Exploration Companies (AMEC) acting chief executive officer Graham Short said the “baffling cash grab” would have serious and unintended consequences, costing jobs and investment in WA.
“The decision to increase the gold royalty rate was based on a flawed mineral royalty rate review undertaken for the Barnett Government, which used an inaccurate methodology and pre-2014 financial data,” Short said.
“Benchmarking against other Australian jurisdictions is misleading, as 70 per cent of Australian gold is produced in Western Australia, compared to only 6 per cent in Queensland, and 13 per cent in New South Wales.
“The royalty increase represents a 50 per cent hike in a major business input cost for the gold industry. This is significant and cannot be easily met without consequences. It will be paid for in jobs, investment and mineral exploration activities.”
Short said the Australian gold industry was already facing challenges in the future before this latest hit on the sector.
“Independent analysis by MinEx Consulting forecast that Australia’s gold production would fall by half over the next 40 years, leading to a fall in government revenue, and the number of workers directly employed declining from 28,000 to 7300,” Short said.
“With the McGowan Government making WA less competitive, this royalty increase can only make this forecast worse by shortening mines lives.”
The changes are expected to generate $392 million in addition revenue for the WA Government.