05/12/2014 - 12:51

Small numbers, big impact

05/12/2014 - 12:51

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Two point five per cent. Say it quickly and it doesn't sound like much.

Small numbers, big impact
Newmont Asia Pacific's Boddington gold mine.

Two point five per cent. Say it quickly and it doesn't sound like much. 

Newmont Asia Pacific is Australia’s largest gold miner, owner of the Boddington Gold Mine and joint venture partner of the Kalgoorlie Super Pit.

The current 2.5 per cent gold royalty paid by Newmont to the Western Australian government in 2013 was $50 million.

Fifty million is a big number, regardless of the speed at which you say it.

With the royalty review announced at the peak of commodity prices in 2012 the Western Australian government had forecast budget estimates of $180 million for additional royalties from rate increases in 2015. 

With the review yet to provide its recommendations to government in December, this forecast raises concerns.

Notably, the recommendations are to be presented to parliament without going back to the very industry they impact for comment on how recommendations will affect current or planned operations.

In this tough economic climate, in which gold price has dropped by 36 per cent over the past three years, a lack of feedback to the industry will cause unintended long-term negative consequences in return for short-term royalty take.

As 2014 comes to a close, commodity prices across the board are depressed, with the gold price at a three-year low.

Any cost increase will have an immediate impact on the industry, surrounding communities and gold industry stakeholders.

This is true even if royalty increases come in small increments over a number of years in an attempt to spread the pain.

Royalties are not a tax based on income, but a regulatory cost to be paid regardless of profit or loss.

Royalties are based on production and commodities prices.

Mining companies don’t control the commodity price.

The only aspects a mining company can control are its own cost structures and production which Newmont has successfully managed over the past 18 months.

With the downward trend of gold price, gold companies throughout WA have reduced capital spending and operating costs, halted projects, and, unfortunately made jobs redundant.

In extreme cases, operations have gone into care and maintenance, dormant until such time that the gold price rebounds, or have been shut down completely – leaving people without jobs, contractors and suppliers without business, and communities without a foundation industry.

The increasing cost structure weakens the state’s international competiveness for future investment as companies seek jurisdictions that will provide the stability that long-term investments like mining require.

Likewise investment for exploration to discover the next promising deposit is dramatically reduced.

Quite simpl,y another cost imposed on the industry in the low gold price environment means a very tough future for companies, workers and communities.

According to Thomson Reuters 2013 Gold Survey, Australia is the second most expensive region in the world to produce gold. 

Newmont continues to be committed to its Australian operations and is well positioned to endure the challenges of a low gold price environment. 

However the perfect storm is nigh, with lowering gold prices and increased regulatory burden. Newmont already make substantial contribution to communities through taxes, royalties, payrolls and community contributions.

There is an alternative.

We ask the government to work with us collaboratively to increase efficiencies and remove costs from the current structures to enable the sector to continue to contribute at current levels, maintain investor confidence, and retain a viable foundation for the future, when commodity prices are expected to recover on the back of economic growth, particularly in emerging nations.

Newmont has met with government.

We have offered to open our books to prove the financials, show the opportunities, and explain the issues.

We ask government to bring its recommendations forward to the sector so we can understand how those recommendations affect our operations, communities and workforce, before those decisions are finalised.

As you would expect, Newmont is keen to see the recommendations from the royalty review.

But equally keen to see the outcomes are our workforce, contractors, suppliers and the communities of Boddington and Kalgoorlie. 

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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