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Western Australian gold miners brace for another royalty hike attempt

Western Australia's gold sector is bracing for another attempt by the state government to lift the royalty rate in 2019, after such a rise was ruled out for the 2018 Budget but with the door left open for an increase down the line.

Gold Fields Ltd. Executive Vice President Australasia Stuart Mathews said March 27 that while the company has maintained well over 930,000 ounces of annual production for the last four years, peaking in 2014 at 1.03 million ounces off the back of very high grades at Granny Smith, "it's not all plain sailing in Australia."

Mathews told an Austmine event in Perth that he believes the Western Australian royalty issue is "not done."

"We've won two fights here but only by one vote. It took a lot of lobbying on behalf of people like [Northern Star Resources Ltd. executive chairman] Bill Beament, [Saracen Mineral Holdings Ltd. managing director] Raleigh Finlayson and others," Mathews said.

"It's important that we really need to educate the public about what we're really about, because this is what this state was founded on."

A Western Australian government source told S&P Global Market Intelligence that no further rate rises have been confirmed for this year's state budget since the opposition Liberal Party voted against the ruling Labor Party's latest attempt at lift it from 2.5% to 3.75% in October 2017.

A separate spokesman for Western Australia's Treasury also told S&P Global Market Intelligence that it could be a different story if a U.S. trade war kicks off and iron ore prices plummet, which would significantly reduce Western Australia's revenue and thus the government's ability to pay public servants.

The spokesman said that if those things eventuate, "we might look at something down the line … in the future everything is on the cards."

"If gold suddenly goes through the roof and we look at a proposal which tries to take a very small amount off the very biggest miners … there are far too many variables that would make us rule that out indefinitely," he said.

Western Australia's Treasury data says it expects to reap A$4.584 billion in iron ore royalties in 2017-18 — comprising the bulk of the A$5.211 billion total, though those figures are both set to gradually reduce over the following two fiscal years before picking up again slightly in 2020-21.

Association of Mining and Exploration Companies CEO Warren Pearce told S&P Global Market Intelligence that the industry hopes the government will not change the current royalty regime.

"We're now at the beginning of a recovery of the mining industry, and gold in particular, and we'd hate to see any proposal that would kill that resurgence again ... and increasing the gold royalty would certainly do that," he said.

Further threats for WA gold miners

Mathews also said salaries and wages growth also loom as a threat for the state's gold miners, especially with the "emerging mining boom coming," referring to the meteoric rise of battery metal stocks — though some would argue that boom has already arrived.

"The problem we've got now is that it's not just a couple of commodities; all commodities are on the go now, plus a couple of others," he said.

"We were a bit worried about lithium, [but] now you've got zinc emerging again as well as iron ore, though that may have a few issues on the horizon with low grades ."

"We're going to be under pressure, and when times go slack we know what happens – no one goes to university because we're not sexy anymore. So we have to do something about that; and if we're here for the long-term we have to fight to reach beyond just universities, but right back to primary school level and talk about what a career in mining offers people."

"It's not just about engineers and geologists anymore; it's about a whole raft of other things. People have all sorts opportunities in all sorts of fields related to mining, especially in the technology space."

"We're going to try sell that [message] quite actively."