Western Australia Hikes Royalty on Gold Production

The government of Western Australia announced in early August that from January 1, 2018, a tiered royalty rate will be introduced on gold production in the state, with the royalty rate determined by the Australian dollar price of gold. The current 2.5% rate will apply for each month when the gold spot price (averaged over a month) is A$1,200/ounce (oz) or less, and an increased rate of 3.75% will apply when the spot price is above A$1,200/oz. At the time of the announcement, the price of gold in Australia was about A$1,660/oz.

Also, the current royalty exemption for the first 2,500 oz/year of gold will be removed for large producers from July 1, 2018. The changes will impact about 50 gold mines in Western Australia. The government estimates that the changes will raise A$392 million per year in additional royalty revenue.

“These changes are consistent with the 2015 Mineral Royalty Rate Analysis report, which found the gold industry provided a lower return to the state than other commodities,” said Western Australia Mines and Petroleum Minister Bill Johnston. “Small producers and prospectors producing under 2,500 oz/y will not be impacted by the changes. The McGowan government understands the challenges smaller producers and prospectors face. “It is only fair that the Western Australian community receives a more appropriate return on the state’s resources.

“Recent increases in exploration expenditures, employment, the value of gold sales, and high gold prices indicate strong conditions for the gold industry. Given these strong conditions, and that Western Australia ranked third for investment attractiveness in the recent Fraser Institute 2016 Survey of Mining Companies — ahead of other major gold producers — the changed royalty arrangements are not expected to impact investment in the state’s gold industry.”

Acting Chief Executive of the Chamber of Minerals and Energy of Western Australia Nicole Roocke disagreed, saying the decision by the state government to increase gold royalties was disappointing and shortsighted. “To introduce such austere measures at a time when the gold sector is just experiencing an improvement in production and sales is unjustified, especially when the majority of royalties raised from this increase will eventually be redistributed to other states through the federal goods and services tax after four years . . .

“The gold sector employs 25,000 people — around 23% of the total West Australia mining industry workforce — and many of these jobs may now be put at risk due to this royalty increase. The government should be encouraging investment in the sector, given its positive flow-on effect in job creation and economic growth, not hampering it with higher royalties and taxes.

“What is particularly disappointing about today’s announcement is that the Labor Party is on the record in saying that any increase to gold royalties would have a negative impact due to the marginal nature of the industry. “Gold companies, who have only recently started expanding and constructing new mines, will feel betrayed by this decision and concerned about the future of the industry.”

As featured in Womp 2017 Vol 10 - www.womp-int.com