First Evidence Of Royalty Impact Emerges

Just days after almost 2000 men and women gold sector workers rallied in Kalgoorlie-Boulder to protest against the WA Labor Government’s proposed royalty increase, first details are emerging of the damage to WA jobs this proposal is likely to do.

Newcrest Mining says its Telfer mine in the Pilbara – one of Australia’s biggest gold producing operations – would have been unprofitable last year if the $20-an-ounce extra royalty had been in place.

Telfer's margins are being squeezed already by rising costs at the mine.

“You’ve got 1500 people there working hard to improve that margin,” Newcrest executive general manager Ian Kemish told The West Australian, before raising alarm bells.

He said a proposal by Newcrest to invest $US125 million to extend Telfer’s operating life is planned, however the State Government’s proposed royalty increase will put this investment at risk. The jobs implication is clear.

The gold sector in WA is an interesting one. The biggest mines are not necessarily the biggest profit spinners.

Often, as in the case at Telfer, ageing operations are encountering decreasing gold grades but increasing costs to extract the ore. So while production volumes may be high, the profit margin per ounce is low.

Newmont, the biggest producer of gold in WA, operates the Boddington and Super Pit mines, which each produce about 800,000 ounces a year.

Newmont is considering a $US100 million investment at the Super Pit, in Kalgoorlie-Boulder, but is now warning the expenditure is at risk because of the royalties hike.

The implications are clear again – jobs at risk – at a time when employment in WA, and particularly in regional areas, is under pressure.

It is a fact the Labor State Government did not seem to consider when it announced on September 7 it planned to hike the gold royalty rate from 2.5% to 3.75%.

Treasurer Ben Wyatt said the additional about $390 million to be raised over four years would go towards repairing the State’s Budget. Yet the Treasurer conceded yesterday, when questioned at a Parliament Estimates Committee hearing in Perth, that at least $50 million of the royalty grab would be leaked to the Eastern States as part of GST revenue sharing, and that beyond the four-year forward estimates period about 60% of the extra royalty income – yes, more than half! – would flow east.

In other words, the additional impost on WA gold miners will cost jobs in WA but further help to fill Eastern States' coffers – which seems a counterproductive WA Government initiative when the focus should be on policy that stimulates economic growth in the state.

Interestingly, when quizzed by Nationals MP Terry Redman yesterday, Mr Wyatt also conceded he had not applied for a GST exemption on this new stream of revenue he plans to raise.

With the jobs threat very real, and evidence the supposed “benefits” of this royalties increase will bypass Western Australians, it is time for the State Government to drop this idea and instead focus on jobs creation – not destruction – as the best lever to improve the State’s fortunes.      

Marielle Azzopardi