Duty on deal ‘from another planet’

When Perth-based chief financial officer Richard Burton, of international nickel miner LionOre Mining, went to his Canadian-based board of directors earlier this year and told them the company would have to pay $12 million in stamp duty to the Western Australian Government as part of a $285 million acquisition of an Australian mining company, their response was somewhat expected.

“They looked at me like I was from another planet,” Mr Burton said.

Is this the kind of response more local exploration and mining companies seeking to get noticed on a global level are going to face as international board’s grapple with WA’s unique new stamp duty laws?

It appears so as merger and acquisition activity heats up in the sector at the same time as the Government is battening down the hatches over the laws introduced in July this year.

The new amendments to the Stamp Duty Act came from the Government’s Business Tax Review, which was completed in 2002, parts of which went through parliament earlier this year.

Sections of the mining and financial community complained then and are still up in arms over the amendments that specifically target “land rich” listed companies.

Under the new laws, takeovers of listed mining companies in which land or mining tenements represent 60 per cent of company assets will attract stamp duty at a rate of up to 6 per cent.

They now claim the Government’s estimates of the expected revenue netted from the new laws are too low.

While admitting the calculation “was not an exact science”, State Treasurer Eric Ripper told parliament in June that the new laws would net $6.1 million in 2004-05.

However, a more recent transaction has the potential to almost double the Government’s June estimate.

LionOre, which recently approved the acquisition of MPI Mines’ nickel assets, estimates it will have to pay between $10 million and $12 million in stamp duty.

The Perth offices of major accounting firms Deloitte and Ernst and Young have already witnessed four deals fall over because of the new duty.

The Association of Mining and Exploration Companies has called for a moratorium on the new duty.

Ernst and Young director Celia Searle said the new law had the potential to “clog-up” merger and takeover activity resulting in a number of issues for the State.

First it could create inefficiencies in the local market place as companies that have not consolidated struggle with overheads and operating inefficiencies are suddenly exposed by a reduction in the commodity price.

Secondly, more of the junior sector will move offshore taking its investment dollars with it.

Meanwhile, as the heat rises beneath merger and acquisition activity in the sector, the WA Government is largely choosing to ignore these warnings.

Besides MPI Mines’ nickel assets, large gold miner Sons of Gwalia, which is in administration, is being sold off and one of Australia’s largest remaining mining companies, WMC Resources, is in the sights of Swiss-based Xstrata. 

A takeover of WMC, which continues to gain ground with Xstrata offering a second bid – this time directly to shareholders – earlier in the week, could net the Government an estimated $180 million under the new laws.

The Government, however, says the new laws are “settled policy” and while it is always open to discussions with “peak groups” in reviewing the budget it will not be reopening the business tax review.

A spokesman for Mr Ripper said the review was an exhaustive exercise and under which the business community was heavily consulted.

“It [the review] started out as a revenue neutral exercise but we in fact lost quite a bit of revenue out of it,” he said.