Magnetite players seek start-up royalty relief

AN alliance of major mining companies is seeking a reduction in the royalty rate for magnetite iron ore exports, which will commence this year.

The Magnetite Network, or MagNet – representing five magnetite hopefuls – is pitching for a lower start-up rate for new producers in order to make the sector more attractive, even as the first operation prepares to commence export later this year.

Some sources suggest a moratorium on royalties has been proposed for five years to give the sector a leg up, but alliance and company representatives remain tight-lipped about the detail of their discussions. An alternative proposition may be a rate of around 3 or 3.5 per cent reflecting the long concession provided for fines iron ore, which has been stepped up recently and will match the lump iron ore rate of 7.5 per cent in 2013.

The group, represented by former state Labor parliamentarian Megan Anwyl, has been negotiating with the state government for some time over the royalties, to put magnetite in its own classification rather than a general other minerals category, which attracts a 5 per cent royalty for concentrate and 4.5 per cent for pellets.

A spokesman for Mines Minister Norman Moore confirmed that industry had been advised that the government was considering what rate would apply, and hoped to be able to advise them within months.

MagNet is also separately involved in a more complex discussion around vanadium, which habitually occurs in magnetite deposits.

Outside the magnetite world, it is understood that the government is also considering creating a separate royalty rate for uranium, which also tends to undergo some processing prior to export.

The battle over royalty rates comes as the state government moved to act on the much-discussed removal of concessions on royalties applied to fines, a move that was expected to generate as much as $2 billion over the next four years and earned it the wrath of the federal government, which sees it as a threat to its new mining tax.

Behind the magnetite producers’ efforts to reduce start-up costs for their mines were new federal taxes proposed after some had committed to go ahead. Both the mining tax, proposed last year, and the much-debated carbon tax would hit the high-energy processors if they come into force.

“We are still having discussions with the state,” Ms Anwyl said.

“This is a start-up industry, there is zero magnetite production, yet.”

Chinese-owned CITIC Pacific’s Sino Iron project at Cape Preston west of Dampier is expected to begin exporting concentrate later this year and will also be producing pellets as part of its operations.

This project is expected to pay about $125 million per year in royalties once it is fully operational.

Sources said that no amount of revenue from this operation had been included in the recent state budget due to the difficult nature of forecasting for start-up mining operations.

At full production the Sino Iron project is expected to be able to produce almost 28 million tonnes of concentrate per year, of which 6mtpa could be further processed to pellets.

Others in the alliance include Gindalbie Metals, Atlas Iron, Asia Iron and Grange Resources, which together with CITIC Pacific represent projects worth more than $16 billion at various stages of development.

The most advanced of these other operators is Gindalbie. The first stage of its Karara project, due to start exporting at the end of this year, is expected to generate $50 million a year in royalties once it is fully operational. About 80 per cent of its production will be magnetite concentrate.

Ms Anwyl said the vanadium issue was far more complex because the state wanted to have a royalty on the material exported with magnetite, even though the producer did not earn revenue from it.

“They want to levy a charge on it,” Ms Anwyl said.

“They are acting on the basis that if you are going to take it out of the ground you should pay for it. It (vanadium) is probably lowering the value of magnetite.”

The Windimurra project owned by Atlantic is the only stand-alone vanadium development. It also expects to be in production this year.

Among several potential uranium projects is BHP Billiton’s planned mine at Yeelirrie near Wiluna, which was forecast to produce 5,000tpa of uranium oxide concentrate starting in 2014.