In brief

  • The royalty rate for iron ore ‘fines’ in Western Australia will increase from 5.625% to 6.5% from 1 July 2012 and to 7.5% from 1 July 2013, and
  • The net impact of these changes on iron ore miners will depend on the final structure of the proposed Minerals Resource Rent Tax (MRRT) but is only likely to impact those miners that are not paying MRRT when the regime is proposed to commence on 1 July 2012.

State to increase iron ore royalties

The Western Australian Government’s 2011–12 Budget was released on 19 May 2011.

One of the critical announcements under the Budget was a phased increase in the royalty rate applying to iron ore ‘fines’. Under the announcement, the royalty rate for iron ore ‘fines’ will increase from 5.625% to 6.5% from 1 July 2012 and to 7.5% from 1 July 2013. The phased introduction of the royalty increase from 1 July 2012 is expected to:

  • align with the commencement of the proposed Minerals Resource Rent Tax (MRRT), and
  • eventually result in the royalty rate for iron ore ‘fines’ being the same as the royalty rate for iron ore ‘lumps’.  

Impact

Given that all state royalties are creditable against the proposed MRRT, the increased royalty rate for iron ore ‘fines’ will be of little concern to those miners who will be paying MRRT when that regime commences on 1 July 2012.

This is because it is likely that all state royalties will be credited against a mining company’s MRRT liability.

It should be noted, however, that for those iron ore miners who will not initially pay MRRT (as a result of the transitional rules), or those who don’t meet the threshold requirements for paying MRRT, the increase in the royalty rate will represent an additional cost which will be payable upon production and may not be recovered for many years (if ever) under the proposed MRRT regime.