Tuesday 24th Apr, 2018

Amid Federal iron ore doubts, Roy Hill targets growth

Roy Hill train - Photo GE Roy Hill
Photo: GE, Roy Hill

Gina Rinehart’s Roy Hill iron ore operation has moved for a 60 million tonne annual capacity, despite the Australian Government forecasting a 20% drop in iron ore prices throughout 2018.

In an application made this week to Western Australia’s Department of Water and Environmental Regulation, Roy Hill is seeking approval for a 60mtpa operation at its mine and processing plant 270 kilometres south-east of Port Hedland.

Roy Hill has in the past cited a production target of 55mtpa, and still lists a 55mtpa capacity for its facility at Port Hedland, as well as the 344-kilometre heavy haul railway it built between the mine and the port. A capacity increase of 5mtpa for either of these facilities is not likely to be much of a challenge, however.

Roy Hill’s move to grow its allowed capacity in the Pilbara comes as the latest figures from Port Hedland show the massive iron ore port had a record month in December.

46.2 million tonnes of iron ore left Port Hedland in December, smashing the previous monthly record of 44.1 million tonnes, set in May 2017.

The price of iron ore has held up to the volume growth, for now, with the commodity price sitting at around US$77.70 earlier this week.

The Australian Government is expecting the iron ore price to drop substantially throughout 2018, however.

The Department of Industry, Innovation and Science’s quarterly update for December, released this week, forecasts the iron ore price to average just US$51.50 a tonne throughout 2018 – around US$26 lower than it is right now, and roughly US$13 lower than the 2017 average.

“Steel production cuts in China have placed downward pressure on the price of Australia’s biggest export – iron ore – in the December quarter,” chief economist Mark Cully wrote.

“Continued moderation in Chinese steel production, coupled with increased supplies from both Australia and Brazil, are expected to weigh further on iron ore prices over the next two years.”

Cully added coal would likely be impacted by the same trend.

“Coal prices, both thermal and metallurgical,” he wrote, “are also forecast to weigh heavily on Australia’s export earnings in the next two years, due to rising global supply and moderating demand.”

 

Latest figures show 51% effective tax rate for miners

A Deloitte study commissioned by the Minerals Council of Australia has suggested Australian miners paid more in taxes and royalties in FY16 than they earned in after tax profits.

The 2017 edition of the Minerals Industry Tax Survey, published this week, considered tax and financial figures from 25 Australian mining companies, covering more than 70% of production of Australia’s major commodities.

When royalties and taxes were combined – a step disputed by many in the anti-mining camp – the Deloitte survey found mining companies paid an effective 51% tax rate in FY16.

This was the second-highest ‘effective tax rate’ cited by Deloitte in the eight year history of the Minerals Council’s tax survey, behind only the 54% rate calculated in FY15, and was up 6% on the average rate since FY08.

“This survey,” Mining Council interim chief executive David Byers said, “conclusively busts the myth that Australian mining companies pay little or no tax.”

Byers continued: “By paying its fair share of company tax and royalties, the Australian minerals industry helps to fund the schools, hospitals, police and other essential services on which Australians depend.”

Deloitte’s report noted mining royalties had increased as a share of governments’ total tax take from mining companies, representing 59% of the total tax take in FY16.

“In FY16 miners were paying approximately 1.4 times more in royalties than company taxes,” the report outlines.

“Given company tax is directly linked to profits whereas royalties are not, this ratio is likely to remain in this range into the future unless underlying profitability improves significantly.”

In fact, if the Minerals Council gets what it wants, the ratio is likely to grow further out: Byers used the report to support the Council’s long-held argument for a reduction to Australia’s corporate tax rate.

“Australia’s 30% company tax rate is too high for a capital-hungry nation which needs to encourage business investment,” Byers said.

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