Gindalbie Metals says its Karara iron ore project will proceed despite the the federal government's proposed resources super profits tax (RSPT), but the tax will reduce returns for the project.
Gindalbie Metals says its Karara iron ore project will proceed despite the the federal government's proposed resources super profits tax (RSPT), but the tax will reduce returns for the project.
The Karara project would proceed with the full support of the company's Chinese partner, Ansteel, which needs concentrates for its steel mills, Gindalbie said in a letter to shareholders on Tuesday.
But the proposed RSPT would have a significant impact on the project, Gindalbie said.
"They will reduce the returns for the project and put planned and possible expansions at risk," company chairman Geoff Wedlock told shareholders.
The Karara project is planned initially to generate $1 billion annually in export revenues, building to $3 billion as the project grows.
The project is to generate around $55 million a year in government royalties on start-up when the existing rules are applied, climbing to $165 million a year as the project expands, the company said.
These royalty payments are in addition to corporate and other taxes that the company is obliged to pay, Gindalbie said.
Gindalbie said it did not view the project's returns as "super profits", but rather, an acceptable return for the high risk taken by investors.
Gindalbie said the RSPT should apply to new investments, not to existing projects or projects already under construction.
"Karara is caught `mid-stream' by the proposed tax," Gindalbie said.
"It will have an additional tax impost but fails to receive any real benefits through accelerated depreciation, government-provided infrastructure or the exploration subsidy.
"The notion that a return above the long term bond rate, currently about 5.7 per cent, is a super profit defies all investment logic, particularly in the high-risk resources sector," the company said.
"Debt providers understandably want to see returns well above the company's cost of capital, which is more like 12 per cent."
Gindalbie said it remains in talks with the federal government over the tax, but believes the government's assumed outcomes from the RSPT are "unjustified and unproven".
"The government's arguments presented in support of the RSPT are misleading and subjective.
"Already, reputational damage has been done to the certainty of business conditions that overseas investors in the Australian resources industry have relied upon."
An inequitable tax regime would encourage large projects to be developed overseas in direct competition to our own projects, the company said.
Gindalbie is among other miners speaking out over the RSPT.
Atlantic Resources yesterday claimed the RSPT will not materially impact its Windimurra Vanadium mine operations, saying despite the obvious impact the super profits tax will have on the industry, the project's large capital base will protect it from being affected by the proposed tax.
"Atlantic strongly opposes the proposed RSPT and believes the design and structure of this new tax will have a negative impact on the resources industry in Australia and raises profound implications for Australia's sovereign risk rating," a statement from Atlantic said.
"Notwithstanding this view, following analysis of the implications of the RSPT, Atlantic has concluded the RSPT will have minimal impact on the Windimurra vanadium project due to the project's large existing capital base and the circumstances under which the project will be acquired from the receiver of Midwest Vanadium."
Iron ore miner Brockman Resources also released a statement, with the aim of correcting "inaccurate market speculation arising from the uncertainty created by the federal government's proposed RSPT."
Brockman said its recently developed strategic relationship with Sinosteel Australia has been in no way adversely affected by the speculation over the affect the RSPT will have on the mining industry, as suggested by "claims made in a Dow Jones Newswire report".
