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Australia mining industry debates tax allowance again

By Siobhan Lismore-Scott, John Ollett
Published: Thursday, 28 February 2013

MMRT raises less than expected; carbon tax putting off miners; FIFO debated

source: ccRBerteig
The Australian mining industry is in the news for the wrong reasons yet again after it was revealed in February that Mining Resource Rent Tax (MRRT) tax only raised A$126m ($129m)* in the first six months of operation – a far cry from the $2bn the Gillard government predicted.

The revelation, made by Treasurer Wayne Swan, led the opposition, The Green Party, to announce that it wanted to “fix the loopholes” in MMRT.

“If Labor fixed the mining tax, we could create the jobs of an innovation-led, twenty first century Australia," Greens Deputy Leader, Adam Bandt, said.

The party continues to argue for raising the tax rate to 40% and cutting Commonwealth refunds of state royalty increases.

The last time that raising MMRT was discussed, by then-Prime Minister Kevin Rudd, it led to him having to step down, mainly due to the harsh opposition from the mining sector.

The MRRT was at 40% and was expected to cover all minerals, when first proposed. The end result was a watered down mining tax legislation, which raised the tax to 30% for iron ore and coal operations.

The threat of raising taxes again has caused some concern for miners in Australia.

“With respect to the future of mining in Australia it is fair to say that the mining industry here has been badly impacted by the rising cost of doing business (wages, power, transport, etc) and the continued threat of new taxes by the current government,” David Fox, study manager for Minotaur Exploration, told IM.

“Whilst the MRRT was introduced only for the iron and coal mining sector, its failure to generate significant income for the government merely adds to the threat of a broader implementation of the tax across the entire mining industry,” he added.

Minotaur are developing a number of kaolin deposits near Poochera, including one in Carey’s Well, which holds a measured resource of 16.3m tonnes of kaolinised granite with an ISO Brightness R457 cut-off of 75 for –45um product.

The company has a further exploration target of an additional 570-810m tonnes of kaolinised granite containing 40%-60% kaolin of ISO Brightness R457 80+ in a further five identified deposits on the tenement.

Kevin Rudd stepped down as Prime Minister following the MMRT announcements
Source:Australian Civil Military Centre
The Minerals Council of Australia has argued that the tax should not be changed.

Harking back to a 24 March 2011 speech made by Minister Martin Ferguson, in which he said "enough is enough" in relation to the speculation about increasing minerals taxation in Australia, the body said: “We agree with Minister Ferguson.”

“Enough is enough in relation to the continued obsession with increasing taxes on mining in Australia. We should be looking at how we can be internationally competitive for investment and jobs for the benefit of Australians today and future generations rather than how we can keep carving up the pie, Ferguson said.”

The total minerals industry tax take from company tax and royalties over the period from 2001-2002 to 2011-12 has been more than $124bn, the body pointed out, adding that the effective tax rate is in excess of 42% against a global average of 39%.

Carbon tax

Australia’s carbon tax has also been hotly disputed in the news this month. On 25 February a study undertaken by lobby group Responding to Climate Change (RTCC) showed that coal fired power stations in Australia were making profits from the carbon tax scheme — and, the group alleged, passing these onto the consumer.

“Since the introduction of a carbon tax in July 2012, electricity generators have passed on over 100% of the carbon price to retailers, while keeping $1bn in cash compensation payments aimed to help heavy polluters make a transition to low emission generation,” the study claimed.

This is a different argument to that offered by mining companies, who claim that the carbon tax can make projects uneconomical to run.

Indeed, some projects have stalled because of rising costs. Global glass maker Owens-Illinois said it was restructuring in Australia at the tail end of 2011, citing carbon tax increases. The company closed two furnaces in Australia in 2012.

Iluka Resources meanwhile made 65 workers at its Eneabba mine redundant in January this year, but this was attributed to slumping demand.

Iluka's Robert Porter says economic conditions have been difficult and it is not yet clear if the operation will reopen. In the past, Porter has warned shareholders on the impact of carbon tax.

Iluka Resources has slashed 200 jobs in Australia
Source: Iluka
In February the company announced its intention to slash another 200 jobs, only adding that more workers could be rehired “once commodity prices improve”.

“One of Australia’s few globally significant competitive advantages was our cheap and abundant power. This has now been trashed with a carbon tax specifically designed to drive up the price of power (with the aim of making expensive green power more palatable) and without any regard to its impact on an export-oriented industry’s global competitiveness,” Fox told IM.

According to the Association of Mining and Exploration Companies (AMEC), which spoke at an industry event in September, the bulk of mining funding raised on the Australian Stock Exchange (ASX) was now being directed towards Africa, Mongolia, and South America.

"Clearly, more ASX raised funds are heading overseas than being spent in Australia,” AMEC CEO Simon Bennison said at the AMEC Convention in Perth.

"The amount of drilling on new deposits has flat-lined in recent years and the greenfields spend is now half of that of brownfields exploration," he added.

Marking the mining tax and carbon tax as contributing to market uncertainty, Bennison called on the government to work harder to make Australia a more attractive place to do business.

"There needs to be an exploration tax credit scheme to make Australia internationally competitive and to streamline regulatory approvals – and of course AMEC favours the removal of the carbon tax and MRRT [Minerals Resource Rent Tax]," he said.

FIFO and DIDO under the microscope

The prevalence of fly in/fly out schemes, known as FIFO, and drive in/ drive out, known as DIDO, were put under the microscope this month also.

FIFO/DIDO is used for mine sites in remote areas. Rather than relocating the employee and their family to a town near the work site, the employee is flown to the work site where they work for a number of days and are then flown back to their home town for a number of days of rest.

Generally, such sites use portable buildings since there is no long-term commitment to that location. Usually a FIFO/DIDO job involves working a long shift for a number of continuous days with all days off spent at home rather than at the work site.

A report released in Parliament in January entitled Cancer of the Bush or Salvation of Our Cities, compiled over an 18 month period by The Standing Committee on Regional Australia, made 21 recommendations to government and 14 to industry. Among these was removing tax benefits for companies using transient workforces.

According to Mining Australia, the report focussed in on the Pilbara region, which not only has a large iron ore and salt deposit operated by Rio Tinto, but is also home to junior miner Altura Lithium.

The report has received a mixed reaction from the Australian government. Most affirm that FIFO and DIDO arrangements are a necessary way of life, while others press for proper infrastructure in the remote areas.

Michael Roche, CEO of Queensland Resources Council, meanwhile said that evidence presented to the reporting body was ignored.

“The report ignores the evidence that we provided to the committee by the way of results from a survey of 2,300 workers with both non-residential and residential workers,” Roche told ABC News.

"What that survey found was that FIFO and drive in drive out workers are very happy with their option and wouldn't change, and the residential workers also wouldn't change,” he added.

*Calculated February 2013

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