"Super" Mining Tax

[purch]

OK folks. I don't stand on either side of the political fence, but here’s my opinion on what I've heard and read in the past 36 hours:

• Fact No.1: Mining companies employ tens of thousands of people, pay workers decent wages and improve infrastructure in their own right (ports, water, rail and road). They already pay royalties, GST, payroll tax and like any other company here in Australia (Banks, Telcoms, Maufacturing etc etc.) pay corporate tax based on annual profits.

• Fact No. 2: Rule No. 1 if you’re a mining company: You must operate wherever the minerals are. Be it Chile, Canada, Indonesia, Zambia, Pakistan, Mexico or Australia. Other countries, particularly developing ones have significant upside when it comes to discovery and exploitation of their natural resources. In contrast, new mineral discoveries of significant size in Australia have been on a sharp decline since the mid 1990s, despite the billions of dollars that have been spent on exploration. Dollars are now bound to head overseas. BHP’s massive Olympic Dam expansion (which last week appeared to be marginal at best) is now likely to make way for expansions in Latin America instead, costing SA thousands of jobs.

• Fact No. 3: Larger resources companies have a better track record at discovering large mineral deposits. Small resource/exploration companies have a better track record of discovering/acquiring small mineral deposits. Giving smaller explorers an exploration concession is unlikely to result in a plethora of world class discoveries.

• Fact No. 4: Both directly and indirectly the mining industry employ the services of 1000s of small businesses in this country. Therefore small businesses are likely to take a hit.


A few other points of contention:

The mining industry was the only thing which stopped this country from feeling the full effects of the GFC last year. Even then, some mining companies almost fell over. Let’s not forget that 12 months ago there was no “boom”. God help us if another GFC ever happens again (history says it will).

Quote: "The super changes would give a 30-year-old worker $108,000 extra when they retired, and increase national savings by an extra $85 billion over the next decade" This assumes that prices for minerals will keep increasing (if the economies China and India overheat then definitely won’t happen), the value of the dollar doesn't get too high (for local miners).

The federal government is going to tax mining companies to pay for increased super contributions. The announcement today sent mining stocks tumbling by 4%. What does just about every super plan invest in? You guessed it, mining stocks. So even if you don’t own shares in a mining company, chances are that your super has already been hit, years before a compulsory increase from your employer is due to come in. Will it go lower?

I have one more gripe with this new “Super Tax”: The resource rich states and territories of WA, QLD, SA and NT will be getting taxed to pay for “infrastructure” NSW and VIC. Mining is essential. We all use its products. Our living standards (yes all of us) depend on it. Just how much will your next/first house cost to build? Just talk to a Perth cab driver about what mining means to him/her and their state...When you think about it this is not very "Robin Hood-like" at all.

Anyway that's my 2 cents worth.

[dedja]

Some very sensible points there.

I could have saved you a lots of words by stating that the government is just plain dumb on this one.

[wycbloods]

Not sure all the facts are facts Purch but otherwise some good points.

Not sure all companies are going to go offshore because of this new tax i think it is simply a scare campaign by the miners. If the resources are here they will stay here because they will still make good money doing it.

[dedja]

The Rudd government is fast becoming Whitlamesq in it's financial (mis)management.

Unfortunately the Federal Election this year is shaping up like the SA State Election ...the incumbent is crap but the thought of giving power to the opposition is just scary.

Lord help us.

[purch]

Not sure all the facts are facts Purch but otherwise some good points.

Not sure all companies are going to go offshore because of this new tax i think it is simply a scare campaign by the miners. If the resources are here they will stay here because they will still make good money doing it.

Re facts: I can only go on my own experience in the industry, plus a hell of a lot of reading and listening wycbloods.

I don't think there's a scare campaign at all mate. There are umpteen projects awaiting approval in this country...they want to get off the ground and start producing. Remember it can take a decade or so between discovery and production too. Despite that, many companies that have done the hard yards (and spent 10s of millions in the process) have been trying to drum up funding to get their projects into production, small mining business mainly. Many of these projects were already only slightly better than marginal, given the capex involved and the volatility in the metals markets. I fear this has gifted those projects which had a chance, the people who undertook the feasibility, and the 1000s of prospective workers, a final fatal blow. I kid you not.

Sure, some will still go ahead due to the quality of the resource (a mineral sands project springs to mind). But most won't. SA in particular will be hit hard.

Tell me where is Australia's growth will come from now? ...What is our NEXT STEP?

[Gozu]

Excellent decision by the government and about time they've been pretty ordinary of late. The big mining companies have been getting it way too easy for too long. The mining lobby have been trying their hardest to run a scare campaign on this but most people can see through their spin. Even Paul Howes said on Q&A tonight he's not concerned about any miners losing their jobs and Stephen Mayne (financial expert/former Liberal Party staffer) who's hardly a lefty supports it.

Billionaire Clive Palmer calling Wayne Swan a communist and factional dalek Nick Minchin almost losing his mind on Q&A tonight are proof if ever any were actually needed that the government on a big winner here.

Here is Mayne's analysis, "Mayne: Mining slug mainly hits multinationals, so who cares?"

With a market capitalisation of $120 billion, Rio Tinto isn’t exactly about to go broke. And BHP-Billiton is trucking along quite nicely with a market value of $228 billion.

The main reason a resources super profits tax works best for Australians is that more than 80% of our resource profits go to foreign owners.

While BHP and Rio together have Australian operations worth almost $200 billion, there is another $200 billion-plus of projects down under controlled by the likes of Xstrata, Mitsui, Mitsubishi, Marubeni, Shell, Exxon-Mobil, BP, BG, Chevron, Anglo-American, Peabody, Conoco-Philips, Apache Energy, Alcoa, Newmont and the Chinese government. That’s another 16 players all of which would have Australian resource investments worth more than $10 billion. Each!

All up, this is a very good initiative by the Rudd government and Tony Abbott should show some consistency with his anti-immigration policies by supporting a move that slugs huge foreign companies but benefits little Aussie battlers.

http://www.crikey.com.au/2010/05/03/min ... who-cares/

[devilsadvocate]

• Fact No. 2: Rule No. 1 if you’re a mining company: You must operate wherever the minerals are. Be it Chile, Canada, Indonesia, Zambia, Pakistan, Mexico or Australia. Other countries, particularly developing ones have significant upside when it comes to discovery and exploitation of their natural resources. In contrast, new mineral discoveries of significant size in Australia have been on a sharp decline since the mid 1990s, despite the billions of dollars that have been spent on exploration. Dollars are now bound to head overseas. BHP’s massive Olympic Dam expansion (which last week appeared to be marginal at best) is now likely to make way for expansions in Latin America instead, costing SA thousands of jobs.

While I agree with everything else in your post, these 2 points are just plain wrong.

New mineral discoveries in Australia have been going bananas, ESPECIALLY since the 1990's. A fantastic example is Alliance Resources and Quasar's recent discovery of the world's 3rd largest known deposit of Uranium at the Beverly 4 mile site.

That Brings me to BHP's Olympic Dam - this mine is so incredibly huge and the bounds of this resource have not yet been found. Every time a new hole is drilled, the resource is added to. It is an IOCGU (Iron Ore Copper Gold Uranium) deposit, the likes of which the world has never seen. It is absolutely immense and even with BHP's MONSTER expansion, the mine will have a life of at least 80 years. With current technology, that's absolutely astonishing.

The mining tax is a terrible idea and shocking internation PR. It is a disgraceful money grab by a desperate Labour government who has overspent massively and is looking at ways of recouping cash to cover its arse.

These additional costs if introduced will simply be absorbed by the market (don't stress - it won't cost thses companies a cent), meaning that China, India et al will pay slightly more for our iron ore. Mine viability is determined on a cost per gram/ounce/tonne etc and compared to the prevailing market prices.

The benefits of many Australian mines is that we have a stable government (current bullshit excepted), and many deposits are so vast and easily mineable that our cost relative to market prices is very low.

But 40% is absurd and whoever dreamt this rubbish up out to be locked away for the good of us all.

[Psyber]

I'd go with purch's analysis rather than Gozu's. [ I don't know enough about da's points.]
The Labor Party does tend to kill the goose that was going to lay the golden egg with disguised new taxes.

I must declare an interest in that I am annoyed personally with the Rudd government right now.
In introducing a national medical registration scheme they are about to increase the rate for registration by around 50%.
This is in effect another tax increase justified they say by the idea that it is much less than membership of the AMA or a medical college.

Here is an abridged form of my response, sent to the AMA and several Labor ministers - only the AMA has replied so far..

... I reached the point at which I no longer needed to work, and could retire, in late 2007 - mainly due to an inheritance, not my savings from medical practice in a poorly paid field.
I had been living in Victoria as a retired practitioner since March 2008

However, I returned to Adelaide in early 2009, and was encouraged to consider part time practice in the Adelaide Hills by interested parties.
Both the Chairman of the local Division of General Practice, and the CEO of the local private hospital pointed out the lack of consultancy services in my specialty in the region.
In particular, I was told there were a high number of poorer patients in the Mt Barker region who were in need of such services, well beyond what the local public system could provide.
It was made clear that these patients could not afford to see me unless I bulk billed.

I was prepared to consider this, and have been providing this service since late 2009 for these reasons:

1. I wanted to give something to the community.
2. The private hospital wanted to provide the service and gave me a generous rental reduction on the normal suite usage fees.
3. The AMA charges me reduced membership fees for part time work.
4. My medical college now charges me nothing for membership, because of how long I have been a member.
5. MIGA have charged me a reduced insurance fee related to my reduced billing income in part time practice.

In this context, it has just been viable to run a bulk billing private practice for the region.
However, I am constantly reviewing its viability, because the patients concerned tend to be an unreliable group, and on the average only 3 out of the 5 booked each day actually turn up.
I don't bill them for the wasted time because they don't have the money anyway, but it does make the practice barely viable.

Now after all these private organisations have provided concessions that help make providing this service possible, the government wants to increase my fixed costs.
The only way to offset this is to work longer hours, which I do not want to do.
It is likely to be the final straw that makes me decide complete retirement is a better option....

[Gozu]

"Digging through the mining industry's lies":

Don’t believe a single word you read in the mainstream media from the mining industry about the impact of the Resource Super Profit Tax.

The mining industry’s preferred cliché is that any changes will “kill the golden goose”, and that’s been getting a thorough workout already. Back in 2006, the Howard Government, News Limited and the mining industry joined forces to whip up a scare campaign about Labor’s proposed reversal of WorkChoices. Steve Knott of the Australian Mines and Metal Associations said removing AWAs would cost the industry $6.6 billion a year.

John Howard called Labor’s IR policies “a dagger to the throat of the Australian mining industry” and Terry McCrann, ever the wordsmith, warned Labor would “kill the mining goose that promises to lay many more and bigger golden eggs”.

The Government will now be criticised for attacking the mining industry, which is dominated by vast multi-nationals generating billions of dollars. The absurd claims of the miners that they’ll move offshore — made even as Newcrest acquires Lihir in a $10 billion deal — will be taken seriously. Dire forecasts of job losses will be run with a straight face, despite previous claims being exposed as blatant falsehoods.

Then again, the media’s primary interest is in conflict and contest, rather than good policy outcomes.

http://www.crikey.com.au/2010/05/04/how ... s-release/

[blink]

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[blink]

The mining tax is a terrible idea and shocking internation PR. It is a disgraceful money grab by a desperate Labour government who has overspent massively and is looking at ways of recouping cash to cover its arse.

These additional costs if introduced will simply be absorbed by the market (don't stress - it won't cost thses companies a cent), meaning that China, India et al will pay slightly more for our iron ore. Mine viability is determined on a cost per gram/ounce/tonne etc and compared to the prevailing market prices.

The benefits of many Australian mines is that we have a stable government (current bullshit excepted), and many deposits are so vast and easily mineable that our cost relative to market prices is very low.

But 40% is absurd and whoever dreamt this rubbish up out to be locked away for the good of us all.

I can see the good and bad points for this "mining super profits" tax.

Pros: The minerals & other natural resources that are currently being mined in Australia and sold for huge profits, belong to ALL Australians. I can see the Government's side of the argument that it is only fair that ALL Australians benefit from the super profits generated through this, the 2nd mining boom. Remember that this is a tax on an industry that has experienced unprecedented growth in the last couple of years, on the back of the economic growth of other nations - the profit they generate is above and beyond what can be generated within the Australian economy - hence the term "super" profits.

As you have mentioned DA, Australia currently sells these vast (but ultimately finite) resources to countries like China & India for a cost that is extremely competitive in world markets and will remain so. Why shouldn't all Australians benefit from this, rather than just the investors and shareholders of mining companies???

However, there are also many Cons, many of which the other previous posters on this thread have mentioned...and I agree with also.

So on these points, I am still unsure if this tax is beneficial or not.

An additional point; which both mining companies and other above posters have failed to mention, is that currently mining companies pay huge royalties to State Governments for the privilege to extract these resources from the ground. My understanding is that these royalties are still to be paid by mining companies, but they will be "re-imbursed" these amounts by the Federal government, essentially scrapping State royalty taxes.
Conveniently, the large mining companies have glossed over this change in their remarks regarding the super profits tax.

[purch]

While I agree with everything else in your post, these 2 points are just plain wrong.

New mineral discoveries in Australia have been going bananas, ESPECIALLY since the 1990's. A fantastic example is Alliance Resources and Quasar's recent discovery of the world's 3rd largest known deposit of Uranium at the Beverly 4 mile site.

I certainly agree with you on 4 Mile. But what are the others? There are plenty Uranium developments at the moment, but many of these are follow up on deposits that were initially discovered in the 1960s-80s.

Other "world class" discoveries I can think of since ~1995 are:

Prominent Hill (IOCG, Minotaur-Oxiana-OZ) - 2001
Jacinth-Ambrosia (Iluka, heavy mineral sands, Eucla Basin) - 2004
Tropicana? (> 4 Moz Au) - 2005

Then there's this:

Doolgunna..world class in terms of Cu grades, but not in terms of size, yet (Cu-Zn-Au, Sandfire Resources) - 2009
Carapateena?...IOCGU..economics look marginal, hence Teck are getting out..

Of course this is just Australia. But it doesn't really compare to the number of Australian discoveries in the 15 years prior to 1995. Of course it's a bit subjective when you consider that a 1 Moz Au deposit was considered "world class" back then, whereas these days most of the world's new gold discoveries are Cu-porphyries, which are giant low grade things containing 10s of millions of ounces.

That Brings me to BHP's Olympic Dam - this mine is so incredibly huge and the bounds of this resource have not yet been found. Every time a new hole is drilled, the resource is added to. It is an IOCGU (Iron Ore Copper Gold Uranium) deposit, the likes of which the world has never seen. It is absolutely immense and even with BHP's MONSTER expansion, the mine will have a life of at least 80 years. With current technology, that's absolutely astonishing.

~4th biggest Cu resource in the world, largest U deposit, but it still hasn't paid for itself (Capex) after >20 years of operation. Currently it's an expensive underground mine. The proposed expansion would give a huge boost to annual production of Cu and U, and reduce mining costs per tonne of ore significantly. It's going to be expensive though...350 metres of barren cover, a smelter optimised for chalcocite ore (most of the resource is chalcopyrite), sensitive challenges related to water. My understanding that the expansion was borderline before the govt's tax announcement. My feeling is it will happen eventually (a decade or 2), but not as soon as many thought, time will tell...Marius Kloppers has already given a hint.

Oh and guess what? http://www.theaustralian.com.au/business/city-beat/cape-lambert-cancels-plans-at-wa-project-as-a-result-of-henry-tax/story-e6frg9no-1225862152771 bye bye investment already

[Squawk]

Mineral deposits may belong to all Australians, but no one has explained as yet (as far as I have heard) how ALL Australians will benefit from the 40% super tax? I know a heap of Australians have already had a big paper loss in share value and will expect reduced dividends. From what I can see, the revenue comes back to the government to cover the cost of a company tax break and super payments to those on less than $37,000 (not coincidentally - I dont think - 1/4 of the magical $150k figure that the govt has determined puts those earners in the "rich" category).

I wish someone would do an assessment of how much money has been taken away - directly or indirectly - from the $150k+ earners.

[Psyber]

Mineral deposits may belong to all Australians, but no one has explained as yet (as far as I have heard) how ALL Australians will benefit from the 40% super tax? I know a heap of Australians have already had a big paper loss in share value and will expect reduced dividends. From what I can see, the revenue comes back to the government to cover the cost of a company tax break and super payments to those on less than $37,000 (not coincidentally - I dont think - 1/4 of the magical $150k figure that the govt has determined puts those earners in the "rich" category).
I wish someone would do an assessment of how much money has been taken away - directly or indirectly - from the $150k+ earners.

I don't have figures on MP's current salaries but I would expect there would be resistance to heavily taxing this group among MPs..
My share portfolio is earning me about $28K per annum at present - a few years ago [when they were my sister's shares] that was nearer $45K.

[devilsadvocate]

Some great informative and interesting stuff there Purch - thanks for posting that!

I certainly agree that water is BHP's biggest challenge at Olympic Dam.

On Australian's benefiting from our minerals, to a large extent, I disagree. Why should the lazy or risk averse Aussies benefit from the hard work and risk taking of mining companies and their investors? It costs billions of dollars to search for, analyse and ultimately develop a profitable mine. Billions are paid for the tenements, and royalties are paid on the resources extracted.

Any profits gained from the hard work and the risks taken in mining should rightly go to the investors who made it possible.

IMO - this tax is a lazy mans tax. It's poorly thought out and discourages international investment in Australia. The idea that it's a bad thing that profits of BHP and RIO are going overseas is just ridiculous, because it's the $$$$$'s invested by these parties overseas that has helped develope our mining industry to what it is today and provided the '000's of jobs that are so vital to our country.

This tax would be an absolute disaster for future international investment in this country in ANY industry IMO.

[Psyber]

Selective taxation of specific industries is never a good idea in my view - whether it comes from Rudd or Abbott.
However, I do agree with our graded tax thresholds to ease the burden on low income earners, and would not have a problem with slightly higher tax rates for incomes above $100K per annum.
I did resent paying 57 cents in the dollar back in the 1970s, though, and did everything I could legally do to keep my deductions up rather than do so.
Perhaps that did not always lead to wise choices then, but there comes a point where resentment, and the satisfaction of fighting back, overcomes accountancy...

[mick]

It would seem that superannuation of "working families" is taking a beating partly as a result of Mr Rudd's proposed new tax. However, this weak populist will no doubt back-flip at some stage on this idea as he has done with the centrepiece of his election campaign, the ETS.

[Gozu]

"A credibility gap yawns again for miners":

Fancy News Ltd and other media outlets (such as the Seven Network’s 6pm News) giving oxygen to characters such as Tony Sage and Clive Palmer and their claimed dummy spits over the proposed Resources Super Profits Tax.

And both have declared the RSPT will kill mining projects — although Palmer appeared to run into a bit of difficulty yesterday when a South Australian project he declared was under threat from the RSPT turned out, um, not to actually exist.

Cape Lambert yesterday revealed on Perth radio it was going overseas to Sierra Leone and Greece (good luck there, chaps) instead of proceeding with a project in Western Australia.

One of the characteristics of the mining industry’s campaign to undermine the government’s CPRS was a credibility gap between what they told the press and the public, and what they told investors, about the impact of the CPRS.

Well, you guessed it, the gap is back. Cape Lambert’s announcement has yet to be made to the ASX (or even on its own website). Companies are required by the ASX to disclose anything of material significance to their share price to investors.

So why didn’t Cape Lambert announce it on the ASX? Well, turns out Tony Sage doesn’t think it’s material. “$1 million spend out of $300 million,” he told Crikey this morning. The Australian reports him as referring to $10 million-$15 million yesterday.

$1 million. It seems the RSPT-induced flight of capital is not quite what some in the media would have us believe.

Tony, on the other hand, seems to have stayed away from politics. His colourful mate is one Frank Timis, a bloke that, as The Oz itself reported recently, the ASX won’t let list a company after some unfortunate run ins with the law and bannings overseas.

Good luck in Sierra Leone, Mr Sage.

http://www.crikey.com.au/2010/05/05/the ... or-miners/

[Squawk]

How about a super tax for builders and developers? Heaven knows how much they cream from ordinary everyday Australians trying to build/own a house.

As for populist, I cant see them doing the same for other big industries like car manufacturing, building and construction or the like.

I'm still waiting to find out how ALL Australians will benefit from the super mining tax. As pointed out above, there wouldn't be a super fund in this country which didnt own mining shares.

[purch]

How about a super tax for builders and developers? Heaven knows how much they cream from ordinary everyday Australians trying to build/own a house.

Couldn't agree more. If you are going to tax industry, then tax all of them. Remember that it's only the last 3-4 years that (some) mining companies have been able to give >6% returns to shareholders, and that was never going to last anyway. The previous decades the mining industry was way behind the rest. The thing is though, that right now we are world leaders in mining. Aussies with experience in mining can get employed for projects anywhere in the world.

As for populist, I cant see them doing the same for other big industries like car manufacturing, building and construction or the like.

I wouldn't rule it out with this lot now, but I agree in terms of the mining industry in Australia is "out there" to most Australians. Most have never been and will never go to these places that give everyone such wealth. As for the industries you mention, many of us drive past them every day, and are therefore more politically sensitive.