Western Australia Seeks Gold Royalty Increase
The last few years have been difficult for gold miners and really tough for gold explorers. This holds true for the miners in gold districts near Kalgoorlie and Coolgardie in Western Australia. And, just as they say they are beginning to feel the effects of recently implemented optimization programs and a recovering gold price, the state government wants to increase the royalty by 50%.It’s created a fierce debate in that part of the world and it has cast a spotlight on Western Australia’s Labor Party.
In March, the Labor Party, led by Mark McGowan, unseated the incumbent Liberal Party, which had held a majority in the Parliament of Western Australia for more than eight years. The party rose to power promising to put jobs for Western Australia first. Sound familiar? Prior to the election, McGowan told voters he was opposed to a gold royalty increase and pledged to not increase taxes or introduce new taxes. Understandably, gold miners in Western Australia feel betrayed.
Western Australia has roughly 50 gold mines that run the gamut in size and they make a substantial contribution to local, state and federal governments. Each year, according to the Chamber of Minerals and Energy of Western Australia (CME), the sector spends more than $4.4 billion on wages and salaries, business purchases, community contributions, and local government payments. Gold companies also pay more than $290 million to the state government in royalties and taxes and a further $245 million to the federal government.
A fervent discussion that involves the gold price, foreign exchange rates, all-in cash costs and profit margins, has not only confused the electorate, but also left some gold analysts scratching their heads as to the proposed royalty’s true impact. Similar to those in other parts of the world, the discussion pits miners in rural areas against politicians in urban centers seeking additional revenue for failing social programs. Kalgoorlie is to Perth what Arequipa is to Lima. The royalty increase might be a little easier to justify if it offered more support to people in the areas surrounding the mines. Perth would, however, feel an impact as thousands of fly-in, fly-out miners will see this affect their employers.
To calculate the royalty, the Western Australian treasury has set the threshold at A$1,200/oz ($937/oz). The current gold price stands at more than A$1,638/oz ($1,279), and royalty supporters see mining companies earning a margin of more than $400/oz ($312/oz), but they have forgotten about the trials of the last few years and the need to invest in exploration programs. At current prices, the royalty increase equates to A$20/oz ($16/oz).
High-cost producers would be hit hardest by the royalty increase, which could have an estimated negative 8% to 15% impact on profit margins. The CME claims that five Western Australian gold mines are currently operating on a profit margin of less than 10% at current prices and that number would grow if gold prices fall. As this edition of E&MJ was going to press, a special Liberal party-room meeting had been called for October 10 to decide whether they would join with others to block the gold royalty increase.
Steve Fiscor, Publisher & Editor-in-Chief, E&MJ