Increasing competition: A worker checks a truck loaded with iron ore at Fortescue Metals’ Christmas Creek iron ore mine in the Pilbara region of Western Australia. The region is the world’s largest iron-ore mining hub. Picture: REUTERS
Increasing competition: A worker checks a truck loaded with iron ore at Fortescue Metals’ Christmas Creek iron ore mine in the Pilbara region of Western Australia. The region is the world’s largest iron-ore mining hub. Picture: REUTERS

Perth — The world’s biggest mining companies producing iron ore from Australia are not paying their fair share in taxes, according to a legislator who wants a 20-fold rise in a
state levy that has been unchanged since the 1960s and the era of imperial pounds, shillings and pence.

The proposal has "overwhelming" support and Rio Tinto Group and BHP Billiton’s objections do not stack up, according to Brendon Grylls, Western Australia’s Nationals party leader. Grylls is championing the drive to raise the lease rental payment, levied on ore from the two miners, to A$5 a tonne from 25 Australian cents.

"It is quite clear to me that Western Australia is not receiving a fair recompense for making our iron ore available," Grylls said on Tuesday.

Western Australia is home to the world’s largest iron ore mining hub, with cargoes from the Pilbara feeding Asia’s mills.

The plan by Grylls’s Nationals, a junior partner in the state’s ruling coalition, has met with opposition from Rio and BHP, who say it will cost jobs, jeopardise investment and place them at a disadvantage to rivals.

The fate of the plan may be decided in March when elections are held, and Grylls is betting his partners, the larger Liberal party, will need his support to form a government and he can push the rise through. The proposal was supported by 45% of voters, The West Australian reported in September, based on a poll of 1,700 people.

Real Return

"None of the other charges that these companies pay are set at 1960’s levels and have never been upgraded," said Grylls, who wants the A$7.2bn generated to help to mend the state’s finances, which suffered when the China-led resources boom turned to bust.

The industry is not swayed. The plan would destroy 3,400 jobs in the state and "make us uncompetitive against our biggest competitor, Brazil," Reg Howard-Smith, CE of Western Australia’s Chamber of Minerals and Energy, said, after BHP referred Bloomberg to the group for comment.

The levy would make Western Australia the highest taxed mining jurisdiction in the world, Rio said. Competition was increasing given plans in Brazil to open a giant new mine. "We would be delighted to meet with Grylls again to again outline the problems," the company said. Both Rio and Howard-Smith said that other royalties had been raised in recent years.

The plan "would make existing mines less profitable and reduce the net present value of any new mines built by the two companies", CRU Group analyst Adrian Doyle said.

"The proposed change to lease payments could result in investments being deferred or cancelled due to reduced profitability or a perceived increase in legislative risk."

The showdown comes as the miners’ fortunes have improved following the rout in 2014 and 2015 that culminated in iron ore prices sinking below $40 a tonne. Benchmark ore with 62% content delivered to Qingdao rose 1.2% to $80.41 a tonne on January 11, according to Metal Bulletin.

Bloomberg

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