MINING (ROYALTIES) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 4 May 2011.)

Mr WILLIAMS (MacKillop—Deputy Leader of the Opposition) (12:38): I notify the house that I am the lead speaker for the opposition on this bill. The last time the parliament amended the royalty rates in the Mining Act was back in 2005, and I will come to that in a few minutes, but I was just talking to the minister a moment ago and I am reviewing what I said on that particular occasion.

I refer members to Wednesday 19 October 2005—a very fine speech—and I am reviewing, as I said, my contribution then when I was the lead speaker for the opposition. I will say that at that time I think I did not expect to speak for very long because my concluding comment was, 'I have possibly gone a few minutes longer than I initially intended to.' It may well happen again.

I would like to take a few minutes to put the import of this bill into the context that we find ourselves in here in South Australia and give it a little bit of historical perspective. Notwithstanding that we do have and have seen quite an explosion in the amount of mineral exploration activity in this state over the last 10, 12, almost 15 years—and we are just starting to see that come to fruition and we are starting to see new mines come on board—the reality is that the vast majority of royalty paid to the state from the mining sector comes from the Olympic Dam operation.

The reality is that that will continue to be the case because the enormity of that operation, its sheer magnitude relative to other mining operations in the state, means that it will, for many, many, many years to come, provide the vast majority of royalty revenue to the government from the minerals sector.

We also have had healthy royalty flows from the petroleum sector, historically, in this state. We had thought that that would taper off with the tapering off of production out of the Cooper Basin, but I am pleased to be informed that new technologies which have been developed, principally in the United States in recent years, have seen companies in that jurisdiction using technologies which is extracting a lot more gas from shales. I understand that that technology will more than likely be used in the Cooper Basin, and we will see production out of that area for many, many years to come. I have even been told that there is probably a lot more gas there to be had than we have already taken out of the Cooper Basin, which is good news for both the various operators in that area and for the state and the nation.

I have made the point of the importance of Roxby Downs to the state and to the royalty revenues. I just want to put into a little bit of context what has happened, and I have mentioned the 2005 changes to the royalty. Prior to that, the state had a royalty regime which set the royalties between 1.5 and 2.5 per cent of the value of the product being mined. In practice, the royalty rate at that stage was 2.5 per cent for all manner of product and had been for many years.

When the Roxby Downs Indenture Bill was ratified (I think it was some time in 1982), when the bill went through the parliament, the royalties were specified within the indenture for the Roxby Downs operation, and they were specified to be set at the rate of 2.5 per cent of the value ex-mine lease of product, which I assume was the going rate then. I am not sure what the going rate at other mines was at that time, but certainly in the 2000s and the late 1990s, it was 2.5 per cent. They were set at that rate for five years and then it was set—and I will read from the indenture:

After the fifth anniversary of the commencement date and on or prior to the 31^st day of December 2005, the royalty herein under this clause reverts to the subsequent basic royalty rate of 3.5 per cent of the value ex-mine lease of that product.

So, the indenture set a royalty rate of 3.5 per cent to run from the fifth anniversary of the commencement of the operation up until 31 December 2005. That is significant for a couple of reasons. The original reason for setting that extra rate for royalty from the Olympic Dam operation was in recognition of the contribution the government had to make towards that particular mine. There were roadworks to be constructed, and there were schools, hospitals and public infrastructure to be put in to support the township of Roxby Downs and, of course, the mine of Roxby Downs. The indenture set out that the royalty rate would be 1 per cent above the going rate under the Mining Act so that the state could recover the money that was going to be expended on that public infrastructure.

When we came to heading towards that date at the end of 2005, the government then wished to protect its revenue stream and changed the act. The government had notified, I think probably 18 months before that time—not in the budget of that year but I think it was the previous year—its intention to increase the royalty rate across the board to reflect the 3.5 per cent which was in the indenture, and that duly happened.

A couple of other things occurred at that same time in the bill that I referred to, that is, the Mining (Royalty No 2) Amendment Act 2005. There was an earlier amendment passed that year which covered the extractive industries. This royalty applies particularly to the minerals sector. That bill, as well as increasing the basic mining royalty rate from 2½ per cent to 3½ per cent in effect, also introduced a new concept of a new mine getting a holiday from the full impact of royalties for the first five years of its operation. That royalty rate was set, at the time, at 1.5 per cent.

The bill before us today changes the game quite considerably. It introduces a new concept. It makes a differentiation between mineral which is mined and then refined on site and mineral which is mined and simply processed to a concentrated form and then exported for refining. It sets a differential in the royalty rates between those, and it also changes the royalty rate for those new mine operations I have just referred to. Basically, the bill before us would have the fundamental royalty rate for a mining operation which mines within the state and exports the mined product, without going through the final refining processes, increased from 3½ per cent to 5 per cent. It maintains the 3½ per cent for those mines that mine the ore and then refine to the finished product.

That principally occurs in the gold industry. I think just about every gold miner in the country refines the product pretty well on site; that is done simply because it is the cheapest way to do it. You have to shift a lot of ore—and gold is mined at the rate of only a couple of ounces per tonne of ore—and you would not be able to shift the ore to a different place to refine it. So, pretty well every gold mine refines to pure gold, or 99-point-something per cent pure gold, on site. Roxby Downs has historically refined its copper on site, and that copper will continue to be refined on site into copperplate. In the future, if this bill is successful in getting through the parliament, copper bar will still attract a royalty rate of 3½ per cent.

Our understanding is that, with the impending expansion of the Olympic Dam mine, a significant amount of the ore produced there will be concentrated and shipped out of Australia as copper concentrate. One of the reasons that the operators—and Western Mining was the original operator at Roxby Downs—built the copper refinery there was that, intermingled with the ore, obviously, in that ore body, there is uranium. Certainly, way back in the early eighties it was hard enough to get the mine established because the uranium was there, but it would have been impossible to export that as a concentrate and lose control of the uranium.

Interestingly, governments of the Labor persuasion in Australia today, both federal and state, seem to have moved a long, long way in recent years and do not seem to be concerned about our exporting concentrate that contains uranium. The reality is that the original operators built the copper refinery there simply because they had to go through that process to separate the uranium from the copper. That is why, generally, we find that copper mines will not, in the modern world and certainly in large operations, have a refining process on site. That is certainly the case with the more recent Prominent Hill copper mine, which exports concentrate from the mine.

The concentrate from that sort of mine will attract the royalty rate of 5 per cent. The refined material—say, the copper from Roxby Downs—will attract a royalty rate of 3½ per cent, as will gold, which is produced and refined on site, and silver, similarly.

The other change that is mooted, and we are still not sure of the final detail, is that the commonwealth government has moved to get its hands on royalties from the mineral wealth of this nation. This is a really interesting concept, and the South Australian state government has made very little noise about this, unlike some of the other state governments, particularly Western Australia. Even the former Labor government in Western Australia was very vocal in its opposition to the commonwealth government imposing a resource rent tax across the board, and I suspect that the new Liberal government in Western Australia will be even more vocal in that opposition and will fight that.

The previous Labor government in Western Australia was, I think, making noises about challenging any such move in the High Court. I am surprised that the South Australian government has not made any noise about this. One of the things that we have found at the state government level is that, over the years, our tax base, apart from the GST (and I will come to that in a moment), has been, if not eroded, pretty static. One of the significant tax bases available to the states is mining royalties and that is a very significant revenue stream for the large mining states, particularly Western Australia and, to a similar extent, Queensland. That is why those states will fight the change to having the commonwealth step into that space.

One of the changes that has been made is that the commonwealth realised that it was fighting a losing battle in the run-up to the last federal election, and it took some significant steps backwards away from the imposition of an across the board resource rent tax, and has now restricted it to a couple of significant products, principally iron ore and coal, which, at this stage, do not form a large part of South Australia's mining activity. I think that will change in the future. My understanding of the proposal from the commonwealth now is that it will seek to impose a resource rent tax on coal and iron ore exports from operations which have an annual turnover of over $50 million per year.

There is still a fair way to go on that but one of the questions that I will certainly put to the minister and his departmental officers—and this was part of the debate when it was announced in South Australia that we were considering increasing the royalties—is: what impact the resource rent tax would have, and would the commonwealth rebate these increases to the mining companies concerned, because the original concept of the commonwealth was that it would fully rebate miners for the royalties that had been imposed to that point, but would not rebate for any increases?

I have been told by the minister's departmental officers that the commonwealth has now agreed to fully rebate, including any increases in royalty. I hope the minister is in a position to be able to confirm that in his summing up of the second reading. That is an important issue for South Australia, particularly as iron ore will become a significant part of our mining sector. There are a number of companies apart from OneSteel. We now have Cairn Hill exporting iron ore. We will have companies like Centrex and a number of others that have very good prospects, particularly on Eyre Peninsula, that are moving towards getting into the mining phase and the exporting phase. In time, I think a number of those will go over the $50 million a year threshold and then become a part of the proposed commonwealth resource rent tax. That is an important issue for the state to consider as well.

The opposition, as is convention in this parliament, as this is a budget matter—it was announced in the budget—is not of the mind to oppose this. We will not be opposing the changes. There are some question marks. Having been the shadow spokesperson for mineral resources for some time over the last six or seven years, I have been a passionate supporter of the mining sector.

I am well aware that to discover and then to extract mineral ores in South Australia is at least as difficult—if not more difficult, and therefore more expensive—than doing the same thing in other states. As such, I question the sensibility of setting our royalty rates exactly the same as those in other states, such as Western Australia.

The reality is that mining houses quite often have various decisions in front of them. They quite often have the choice of whether to invest in, say, South Australia, Western Australia or some other part of the world, or another Australian jurisdiction, and they always look at the return on their investment. When you get to 5 per cent of the mine gate, royalties become a significant issue in that decision-making. If it costs a couple of per cent more to find an ore body and then establish a mine in South Australia, we may put ourselves out of the race for future investment.

The other thing we need to understand is that those people who are sitting around boardrooms today in the major mining houses—even the not so major ones—by and large have history and background in other states and, because of that, have some sort of affinity for those states. So, we are behind the eight ball to some extent even before we start, because I think naturally there would be a chance of some bias towards investing in, say, Western Australia rather than South Australia, all other things being equal, simply because the members sitting in the boardroom more than likely have a greater affinity with Western Australia because of the historical nature of their life's work.

So, we need to be careful in simply saying that we are putting the royalty rate in South Australia the same as it is in other states, because it may be too high. On the other hand, I fully appreciate that the people of this state expect and deserve to get a fair and full return for the mineral wealth that is being exploited on their behalf by mining companies. I urge a word of caution: we do not want to discourage exploration and/or investment in mining activities. As I said, the opposition will not be opposing this measure. I sincerely hope that the mining industry is not in any way disadvantaged by this.

I wish to make one more comment for the minister's benefit. The minister has not been in the portfolio for long, and I know that he will enjoy working in the portfolio. When I contacted the South Australian Chamber of Mines and Energy a couple of weeks ago to get feedback on this particular matter, they were somewhat surprised—I will put it in those terms—that they had not been briefed. They were not aware that the bill was imminent and that it had been put to the parliament.

They told me that they had been consulted many months ago (I think it was prior to the budget), but the information I got was that they were unaware that the bill was in the house. I am sure that that is not deliberate, and I am also sure that the minister wishes to get off on the right foot with SACOME and the mining industry. In fact, I was only reading SACOME's latest journal last evening, where there was quite an extensive article about the new minister.

The Hon. A. Koutsantonis interjecting:

Mr WILLIAMS: I have read it now. With that comment, I will conclude my remarks.

Debate adjourned on motion of Ms Chapman.

[Sitting suspended from 12:59 to 14:00]