Key Points:

Although the magnetite iron and uranium oxide royalties will be imposed soon, the Government says it might consider temporary exemptions on a case-by-case basis.

The Western Australia State Government has announced plans to apply a 5% royalty to magnetite iron ore and uranium oxide concentrates extracted from WA mining tenements.

WA's Minister for Mines and Petroleum Norman Moore announced the State Government's intention to apply these royalties at the Australian Uranium Conference in Fremantle last week.

Regulation 86 of the Mining Regulations (WA) 1981 provides that when any of the minerals prescribed in the Regulation are obtained from a mining tenement, or from land the subject of an application for a mining tenement, royalties shall be paid by the holder of, or applicant for, the mining tenement.

The State Government intends to introduce uranium oxide as a prescribed mineral before 1 July 2012 and amendments to the Regulations to effect this are already underway.

There is no need for legislative amendment in respect of the royalty applicable to magnetite as it is already subject to a 5% royalty by being "beneficiated iron ore" under Regulation 86.

Magnetite

Based on the production schedules of the State's current and emerging magnetite producers (including Crosslands Resources (Murchison Metals/Mitsubishi Development), Gindalbie Metals/Ansteel, Grange Resources, Sinosteel Midwest and CITIC Pacific), the State Government has estimated that the magnetite royalty will yield approximately $60 million per annum between 2011 and 2012 and $160 million per annum between 2014 and 2015.

In observing that a number of the State's magnetite deposits include significant vanadium resources, Mr Moore noted that companies mining magnetite may need to implement a separation circuit to avoid paying a 5% royalty in respect of any vanadium pentoxide which naturally occurs alongside magnetite.

The Federal Government has announced that any magnetite royalties paid will be credited against its proposed Minerals Resource Rent Tax Act (MRRT) set for commencement on 1 July 2012. The MRRT also applies to magnetite iron ore despite miners lobbying for an exemption due to the capital-intensive nature of magnetite mining.

Uranium

Although the WA State Government's six-year administrative ban on uranium mining was lifted in 2008 following the removal of the Federal Government's "no-new-mines" policy in 2007, there are not as yet any operating uranium mines in WA.

Based on the production schedules of the leading uranium mining proponents in WA (including Cameco/Mitsubishi Development, Toro Energy, Mega Uranium/JAURD-Itochu and BHP Billiton), the State Government estimates that the uranium oxide royalty will yield approximately $10 million per annum between 2013 and 2014 and a further $28 million per annum between 2014 and 2015.

There are currently only four uranium mines operating in Australia, three in South Australia and one in the Northern Territory. Government royalties are applied to uranium in each of those jurisdictions.

Industry response

Assertions that the application of royalties may delay or discourage investment in the magnetite and uranium sectors does not appear to have influenced the State Government.

Mining companies and industry representative groups (including the Magnetite Network, an association of WA's magnetite miners, and the Australian Uranium Association) have appealed to the State Government for concessional treatment for the uranium and magnetite iron ore industries. For example, a deferral of the imposition of Government royalties for the first few years of production would give these emerging and capital-intensive industries a chance to establish themselves.

Mr Moore has stated that the State Government would consider individual circumstances on a case-by-case basis, granting temporary exemptions to applicants where the Government considers it appropriate.

Thanks to Naomi Gearon for her help in writing this article