ULIA Gillard’s revamped mining tax is looming as a key election issue in Western Australia, despite the nation’s biggest miners agreeing to her proposed 30 per cent tax on coal and iron ore profits.
JULIA Gillard’s revamped mining tax is looming as a key election issue in Western Australia, despite the nation’s biggest miners agreeing to her proposed 30 per cent tax on coal and iron ore profits.
As debate rages over the government’s claims the reshaped tax will still rake in $10.5 billion by 2014 despite its narrower base, the plan has also alienated the junior mining sector which is demanding further major amendments.
Meanwhile federal opposition leader Tony Abbott, who has pledged to scrap the tax entirely, maintains a preferences deal between Labor and the Greens will inevitably see the tax rate increased and applied to the broader mining sector.
That has set alarm bells ringing in WA, which premier Colin Barnett maintains will already bear the brunt of the revised tax scheme, contributing more than $7.5 billion of the $10.5 billion in forecast mining tax receipts.
For WA’s junior mining sector, the tax scheme remains a volatile issue.
While non-iron ore companies are relieved at their exemption, they remain furious that the previously promised 30 per cent rebate on exploration spending has been dumped.
Furthermore, junior iron ore miners believe they have been unfairly discriminated against, further restricting their ability to attract capital and investment support.
In particular, magnetite miners such as Gindalbie Metals want to be exempted from the tax completely, just as Queensland’s emerging coal-seam gas industry has been, given the extensive processing needed to attain a saleable product from low grade magnetite ores.
But Labor MP Gary Gray, parliamentary secretary for WA and one of Ms Gillard’s most senior advisers, told WA Business News that a special deal for magnetite was unnecessary because it would be taxed “as close as possible to the mine gate”, meaning few magnetite miners would ever be liable for the tax.
“When magnetite arrives at the mine gate, it hasn’t yet gone through any of the stages of beneficiation,” Mr Gray said in Geraldton.
“(So) magnetite, at the mine gate, will be of a value that escapes this tax. This stuff has such a low value that it’s impossible to see that it will be caught in that tax environment.”
But based on analysts’ price and currency forecasts, magnetite producers could be facing a big tax impost.
Some analysts expect iron ore fines to average $96 per tonne in 2012, implying a notional contained metal value of about $60 per tonne for unprocessed ore from Gindalbie’s Karara magnetite project.
After including the proposed 25 per cent allowance for extraction costs, its taxable value would fall to around $45 per tonne, versus Gindalbie’s forecast production costs of $46 per tonne.
However, Gindalbie forecasts its actual mining costs at just $11 per tonne, with processing and transport costs accounting for most of the remaining cost.
How the government determines magnetite producers’ cost base will therefore be crucial, given that there is no market for unprocessed magnetite ore and in reality it remains effectively worthless until it has been processed and delivered to port.
According to Mr Barnett, such uncertainty poses a major threat to at least 16 proposed magnetite projects in WA collectively worth more than $40 billion.
But Mr Gray dismissed those fears as unfounded, and predicted even Mr Abbott would ultimately support the agreed tax deal with the nation’s biggest miners.
“I don’t expect the opposition leader, when he sees a tax that will generate several billions of dollars, will turn his back on it,” he said.