Rio Tinto has received royalty concessions and the removal of secondary processing obligations from the State Government, clearing the way for a $1.3 billion expansion of the Argyle diamond mine in the Kimberley.
Rio Tinto has received royalty concessions and the removal of secondary processing obligations from the State Government, clearing the way for a $1.3 billion expansion of the Argyle diamond mine in the Kimberley.
Under an agreement with the State Government, Rio will pay a reduced royalty rate of 5 per cent on all diamond mine production from January 1 next year, reduced from the current royalty rate of 7.5 per cent of production or 22.5 per cent of profit, whichever was the greater.
Last year, Rio paid the State Government about $31 million in diamond royalties. Had the concessions been in place this year, that figure would have been about $20.7 million. Diamond royalties have been more than $80 million a few years ago when the mine was more productive.
The agreement also gives Rio permission to shift some of the polishing and cutting of diamonds to India in order to take advantage of cheaper labour.
According to Rio - which fully owns Argyle Diamonds, owner of the mine - the concessions were needed to make the mine's underground extension commercially viable.
The mine was due to be closed in 2008, but the go ahead will extend the life of what is the world's largest diamond project for another 10 years.
Argyle produces internationally recognised pink diamonds, worth $337 million last year.
As part of the total capital cost, Rio will spend $205 million on smoothing the transition from open pit to underground mining at the site, preventing production from being interrupted.
Throwing his weight behind the expansion, Premier Geoff Gallop cited the need to maintain Argyle as the largest contributor to the Kimberley economy as the rationale behind the government's royalty waiver.
"Rio Tinto's decision to develop the underground project will provide more jobs to the region with a peak workforce of 1,500, and will extend the mine's life by a further 10 years".
The government's secondary processing obligations which required Argyle to conduct the cutting and polishing of diamonds in the Kimberley have also been relaxed, with Rio to send the gems to India for some of these needs. Some work will still be done in the East Kimberley and in Perth, Dr Gallop said.
"We hope to establish the cutting of diamonds here at the Perth Mint," he said.
Argyle Diamond managing director David Rose said the negotiation process with the government had been a cooperative one.
"The risk associated with a five year build time did mean that the investment risk was too much to bear," Mr Rose said.
He said Argyle's contractor at the site, Roche Mining, would work on the expansion project.
Mr Rose said moving underground would enable production of eight million tonnes of raw material annually.
Rio Tinto chief executive Leigh Clifford said, "The Western Australian Government's agreement to provide royalty relief and waive some secondary processing obligations has been fundamental to the economics of the expansion and will ensure that Argyle continues to play an important regional role."
"This is a particularly good decision for the East Kimberley area, the Indian cutting and polishing industry and the affordable fashion jewellery industry, each with a degree of dependence on the Argyle business," he said.
Argyle is the largest mining operation in the Kimberley region, employing 780 people.
Since commercial production at the mine commenced in 1983, over 500 million carats of diamonds have been produced.
A proposal for the development of the Ord River irrigation area had rested on the installation of a cogeneration power station linked to the Argyle expansion.
State Development Minister Alan Carpenter said there were no added conditions in the government's agreement with Rio for development in the Ord region.
The decision to waive the royalties comes at a time when Rio and BHP Billiton are seeking to extend similar compensation for their billion dollar investments in iron ore infrastructure.
The mining giants are resisting the Government's push for higher royalties, which could increase their annual payments by an estimated $60 million.
The government's stance on iron ore royalty concessions has been more oppositional this year, challenging the accuracy of a report by the Auditor-General in June, which stated the concessions on royalty rates in iron ore agreements signed between the 1950s and 70s were part of an overall negotiated package.
