20/02/2008 - 22:00

Land-rich miners count cost

20/02/2008 - 22:00

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The state government is up for a big windfall in stamp duty from takeovers, with three big transactions theoretically providing at least $80 million this financial year.

Land-rich miners count cost

The state government is up for a big windfall in stamp duty from takeovers, with three big transactions theoretically providing at least $80 million this financial year.

The takeovers of Canadian-based LionOre Mining International Ltd, Jubilee Mines Ltd, and Consolidated Minerals Ltd have all settled this year and are likely to generate strong income for treasury under Western Australia’s land-rich provisions in the stamp act, the only state which encompasses listed companies.

That number, based on the last published land-related assets values for each of the target companies involved, is likely to be dwarfed by collections from BHP Billiton Ltd, should it be successful in its $1.63 billion bid for Rio Tinto Ltd.

Industry sources suggest the state could earn anywhere between $1 billion and $6 billion if Rio was consumed by BHP.

“The numbers dropping out of takeover activity are huge,” said one tax specialist.

But despite the very public nature of these transactions, the stamp duty details are scant.

State budget papers do not disclose these figures, burying them within an estimated $2 billion raised last financial year from stamp duty on conveyancing and transfers, a figure dominated by general land transactions.

The issue is a vexed one for many in the advisory industry, who feel the government is simply enjoying the fruits of a tax which was never designed to capture these types of transactions.

The time and cost of these transactions is considered significant, making the costs associated even greater than the 5.4 per cent that is applied to the assets defined as land, which itself was described as a major deterrent to takeover activity by one tax specialist.

The question of valuations is so fraught with difficulty that WA Business News could not obtain a ballpark estimate for any of the three big transactions that have taken place this financial year – Norilsk Nickel’s $7.7 billion takeover of LionOre, Palmary Pty Ltd’s $1.15 billion acquisition of Consolidated Minerals, and Xtrata plc’s $3.1 billion purchase of Jubilee.

Instead, the baseline figures from the latest published accounts were used to estimate that Norilsk owes the state $55.6 million, Xstrata would owe $8.9 million and Palmary $15.7 million. If Murchison Metals Ltd had won its battle for Midwest Corporation Ltd it would have been taxed $2.8 million.

But these numbers represent the lowest starting point, due to their timing and their preparation under specific accounting standards.

In many cases the numbers could be much higher, based on later developments and commodity prices.

Then there is the takeover premium, which invites a legal argument over whether that is goodwill or simply a revised valuation of the assets, especially in miners where tenements, mine sites, processing equipment and even exploration data can all be defined as land for taxation purposes and represent much of the perceived value of the company.

Practitioners say the government’s Office of State Revenue almost always seeks a valuation of its own, creating a very expensive process.

“The cost to the company and the cost to the government is enormous,” a source said.

Industry players said the issue will become even bigger on July 1 when the definition of land rich is changed to a simple test that includes all companies with WA land worth $2 million or more.

Currently, land has to be worth more than $1 million and represent more than 60 per cent of the company’s assets for it to be deemed land rich, a test which has typically captured miners.

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