Royalty review fears

The Department of Mines and Petroleum is seeking to recover about $11 million in unpaid royalties amid producer disquiet about possible royalty rate increases.

DMP deputy director general Michelle Andrews told Business News that, of the $11 million sought in unpaid royalties from the 2013-14 financial year, about $10 million was in dispute.

She said disputes usually related to companies making errors when calculating royalties or incorrectly interpreting legislation.

The state government collects royalties at different rates depending on the product and level of processing required for sale.

Crushed and screened bulk materials such as iron ore attract a royalty rate of 7.5 per cent, while mineral concentrates such as nickel pay 5 per cent, and metals requiring the highest rates of processing such as gold 2.5 per cent.

The variances are aimed at capturing 10 per cent of the mine head value.

A review under way into mineral royalty rates is due to be handed down by the end of this year.

Industry groups the Chamber of Minerals and Energy of Western Australia and the Association of Mining and Exploration Companies have supported many miners who do not want to see a change to the royalty rates.

Rio Tinto has asserted that, while it supports the royalty status quo, the current system has resulted in it delivering more than 10 per cent of its mine head value.

“Our iron ore operations in Western Australia currently provide a royalty return in excess of 11 per cent of the value of the ore at the mine head ... (and) it is estimated that the rate will increase to over 13 per cent in the near to medium term,” Rio said in its submission.

The state government has flagged a possible royalty rate rise, with Premier Colin Barnett describing the current rate, particularly for gold, as being “light on”.

Gold miners have lobbied against potential rises, citing tightening operating margins.

AMEC chief executive Simon Bennison told Business News royalties were collected to ensure a fair return to the community, which he believed was already occurring.

“The industry is doing it very tough at the moment and the cost structure is such that they can’t bear any more costs, particularly in the base metals, and we’ve recently seen gold (miners) have an enormous increase of cost in production so there’s very little room to move,” Mr Bennison said.

“This is a balancing act between making sure we do get the fair return to the community but also understand what the industry has the capacity to deliver in the way of royalties.”

Of the $11 million total in dispute, the DMP is chasing $1 million owed by companies under administration.

Companies that went into administration in the past financial year include iron ore miner Western Desert Resources, gold miner Apex Minerals, and oil and gas producer Nexus Energy.

A spokesman for Nexus Energy’s administrator said the company couldn’t comment on the state of individual creditors, while the administrator for Western Desert and Apex Minerals did not respond to inquiries before deadline.