Legislative Council Fifty-Second Parliament, First Session (52-1) 52 1 Parliament of South Australia Legislative Council published Bills Mining (Royalties) Amendment Bill MINING (ROYALTIES) AMENDMENT BILL Introduction and First Reading Introduction and First Reading Received from the House of Assembly and read a first time. Second Reading Second Reading The Hon. G.E. GAGO Legislative Council Minister for Regional Development, Minister for Public Sector Management, Minister for the Status of Women, Minister for Consumer Affairs, Minister for Government Enterprises, Minister for Gambling The Hon. G.E. GAGO (Minister for Regional Development, Minister for Public Sector Management, Minister for the Status of Women, Minister for Consumer Affairs, Minister for Government Enterprises, Minister for Gambling) (22:02): I move: That this bill be now read a second time. I seek leave to have the second reading explanation inserted in Hansard without my reading it. Leave granted. In the 2010-11 Budget, the Treasurer announced the reform to the mineral royalty regime in South Australia to secure a more appropriate dividend for South Australians from our mineral resources, whilst maintaining the State's competitive business climate through incentives for new mines and mine operators who substantially refine their products in South Australia. In accordance with the Budget announcement, this Bill provides for section 17 of the Mining Act 1971 to be amended to introduce a new three-tiered system for mineral royalties from 1 July 2011. The current royalty rate in the Mining Act 1971 is set at an ad valorem rate of 3.5 per cent of the ex-mine gate value of all minerals, other than extractive minerals that is based on a volumetric rate. A concessional rate of 1.5 per cent currently applies for the first five years of a new mine that has an approved existing new mine determination. A new royalty rate of 5 per cent will apply on bulk export commodities such as iron ore, coal and copper concentrates. This change to royalty rates will bring South Australia into line with Western Australia, where the 5 per cent rate is already applied to the ores and concentrates. The mineral ad valorem royalty rate of 3.5 per cent will be retained for refined metallic products, including refined copper, gold and silver. It will also continue to apply to certain categories of industrial minerals and construction materials including salt, limestone, dolomite and gypsum. Retaining the 3.5 per cent rate for industrial minerals and construction materials will ensure that the housing and construction sector is not affected by the changes. The new royalty structure is intended to sustain the existing investment in metallic processing, in particular the smelting and refining processing at the Olympic Dam mine, which undertakes more on-site value added processing than any other base metal mine in Australia. Currently in South Australia, those mines producing refined metal including Olympic Dam, Challenger and White Dam would be subject to the 3.5 per cent royalty rate for the refined products. The existing concessional rate of 1.5 per cent for the first five years of a new mine will be changed to 2 per cent. 'New mines' approved prior to 16 September 2010 will pay a royalty rate of 1.5 per cent for the first five years of the mine's operation. New mines approved after 16 September 2010 will pay the 2.0 per cent concessional royalty rate. The retention of a 'new mine' rate, albeit slightly higher than currently, is considered an important ongoing concession for new start up mines. The 'new mine' rate provides a competitive royalty rate for South Australia and recognises the negative cash flow and high risk involved in the pre-mine and construction periods of a mining operation. For the financial year 2009-2010, approximately 80 per cent of South Australia's mineral royalty revenue was sourced from three mining operations being BHP Billiton's Olympic Dam, OZ Minerals' Prominent Hill and OneSteel's Middleback Ranges iron ore operations. The existing Olympic Dam operation would face increased royalty payments only in respect of its uranium oxide sales. Refined copper, gold and silver will continue to attract 3.5 per cent royalty. The grandfathering of the new mine rate at 1.5 per cent is considered to be an important concession in respect of Prominent Hill which would face an increase in its copper concentrate royalty to 5 per cent but not until the new mine rate concession expires from 2014-15 onwards. Other existing mines paying the 1.5 per cent rate will be subject to this rate until the end of their five year term including the Jacinth Ambrosia, Angas, White Dam, Cairn Hill, Mindarie, Kanmantoo and Honeymoon mines. Upon expiry of the new mine rate concession those mines producing a mineral ore or concentrate will be subject to an increase in royalty rates from 3.5 per cent to 5 per cent. The OneSteel iron ore operations currently have rates of royalty imposed under its Indenture arrangements, the Whyalla Steel Works Act 1958. It is proposed to amend the Whyalla Steel Works Act 1958 to introduce a phased increase in royalty rates applying to export iron ore. The Commonwealth Minerals Resource Rent Tax scheme was announced on 2 July 2010 and is payable by iron ore and coal mining operations that exceed taxable profits of $50m per annum. The Minerals Resources Rent Tax will provide a full credit for current and future state mining royalties paid by the mining companies. In South Australia, currently OneSteel iron ore operations will be subject to the Minerals Resources Rent Tax scheme with some smaller iron ore miners in South Australia likely to be subject to the scheme in the future. The Government has already consulted with key mining companies and the South Australian Chamber of Mines and Energy on these reforms. In summary, these reforms introduce a new three tiered royalty system, that: aligns the mineral royalty rates with other Australian jurisdictions; ensures an appropriate return to the State and community from the revenue generated from the State's mineral assets; and continues to encourage investment in the development of new mines by maintaining a competitive business climate. I commend the Bill to Members. Explanation of Clauses Explanation of Clauses Part 1—Preliminary 1—Short title This clause is formal. 2—Commencement The measure will come into operation (or be taken to have come into operation) on 1 July 2011. 3—Amendment provisions This clause is formal. Part 2—Amendment of Mining Act 1971 4—Amendment of section 17—Royalty Changes are to be made to the royalty rates for certain minerals other than extractive minerals. 5—Amendment of section 17A—Reduced royalty for new mines A change is to be made to the royalty rate for new mines under section 17A of the Act. 6—Amendment of section 17F—Processed minerals This is a consequential amendment. 7—Amendment of section 92—Regulations The maximum penalty that may be imposed for a breach of, or non-compliance with, any regulation is be increased to $10 000. This new amount is consistent with the administrative penalty regime to be introduced under the Mining (Miscellaneous) Amendment Act 2010. Schedule 1—Transitional provision 1—Transitional provisions This schedule sets out transitional provisions for the purposes of this measure. The amendments to section 17 of the Act are to apply in relation to minerals recovered on or after 1 July 2011. The amendments to section 17A of the Act are to apply to any new mine declared on account of an application made on or after 16 September 2010 (including a mine declared to be a new mine after that date and before the commencement of this measure). The new rate for new mines is not to apply to a new mine declared under an application lodged before 16 September 2010. Debate adjourned on motion of Hon. D.W. Ridgway. At 22:03 the council adjourned until Thursday 19 May 2011 at 14:15.