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Mining lobby airs mixed feelings about new Western Australian budget


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Mining lobby airs mixed feelings about new Western Australian budget

Miners are relieved not to have been "singled out" in the new Western Australian government budget as they were in 2017 but are not happy about being asked to pay for the continuation of services and grants they consider core to doing business.

The mining boom triggered by China's surging demand for iron ore, among other commodities, gave the government a huge boost to revenues, but the recovery post-downturn has been a long one, with the state's economy contracting 2.7% in 2016-17.

However, the state's economy is now estimated to grow 2.5% in 2017-18 and a further 3.25% in 2018-19, largely fueled by exports of iron ore, gold, lithium and liquefied natural gas.

In the state budget handed down May 10, the government introduced what Association of Mining & Exploration Cos. CEO Warren Pearce said amounts to about A$65 million of increased fees, charges and levies across the broader mining industry.

Mines and Petroleum Minister Bill Johnston said the budget associated with regulating and supporting the resources sector is about 54% funded by taxpayers and 46% by resources companies.

The 2018-19 state budget includes A$13 million in grant revenue and A$9.3 million in expenditure to implement the Pilbara Environmental Offsets Fund, which will receive financial contributions from miners and other companies that cannot otherwise mitigate the impacts of their operations on the environment.

Pest, plant and animal control, fire management, erosion control, and on-ground works that improve native vegetation and/or habitat for threatened species such as the Ghost Bat, Greater Bilby and Pilbara Olive Python will be delivered through the fund.

Fortescue Metals Group Ltd., Hamersley Iron Pty. Ltd., Mount Bruce Mining Pty. Ltd and BHP Billiton Group will be among the first companies to pay into the fund to offset the impacts of their mining development in the Pilbara.

Chamber of Minerals and Energy of Western Australia acting CEO Nicole Roocke said royalties from the resources sector are forecast to inject A$5.9 billion into the state's economy in 2018-19.

The May 10 budget also revealed that rents on mining tenements will rise 6% per annum for two years to pay for the A$10 million-per-year Exploration Incentive Scheme, or EIS, while the mine safety levy will increase by a more modest 5% after 2017's 33% rise.

The structuring of the increase for existing and older mining tenements fees will minimize the flow on effect to property valuations for shire rating purposes and mitigate the impact for exploration companies with newer exploration leases.

Juniors to be 'protected'

However, the government said that for the first three years of an exploration license (graticular blocks), rents will only increase 1.5% in 2018-19 and 2019-20 to protect the junior sector in "finding the deposits of the future,"

Johnston said the government has been a strong supporter of the EIS, but "to safeguard it for the benefit of industry, it needs to be funded effectively."

The government also announced an "improved cost recovery" model for environmental regulation services that will generate an additional A$19.4 million over the next four years from miners for the Department of Water and Environmental Regulation to deal with the increasing demand for environmental assessments and approvals associated with economic growth and the improving investor sentiment miners are enjoying.

The government conceded that delays and backlogs in environmental regulation can slow economic activity and hold up critical infrastructure projects for the state.

Mixed feelings about budget

"We support the direction government is taking in terms of the initiatives they're doing — continuing the EIS, bringing in more people to support environmental approvals — we just don't support the way in which they're funding it, which is from us," Pearce told S&P Global Market Intelligence.

"Last year's state budget really felt like the mining sector was being singled out, with huge hits in both payroll tax for large companies, and the gold royalty increases [which was subsequently voted down]," he said. "This year, we've copped a smaller impact, but it's somewhat measured against what other industries are being expected to contribute."

Roocke said the A$25 million that miners will also have to pay because they are no longer exempted from the Building and Construction Industry Training Fund levy would add cost pressures, as would additional revenue through cost recovery for environmental regulation services undertaken by the Department of Water and Environmental Regulation.