Partial backdown on mining royalties

An unpopular proposal to increase mining-sector royalties and taxes has been formally watered down, with the Government saying yesterday any royalty changes would only affect new entrants to the sector.

Royalties from existing operations, such as East Otago's Oceana Gold or Newmont Waihi Gold in the central North Island, would not be affected, but may yet be affected by tax changes.

The proposed increases sparked disbelief and outspoken criticism by Oceana and Newmont - the country's two largest gold producers - during the New Zealand branch annual conference of the Australian Institute of Mining & Metallurgy in Rotorua in August.

Minister of Energy and Resources Phil Heatley warned the conference delegates in August parts of the proposals were "not perfect" for them, prompting ministry officials to hurriedly pass on quiet assurances to senior mining executives that the proposals would not affect current miners.

With no firm details then, comparisons were being made with Australian Prime Minister Julia Gillard's ill-fated proposal for a 40% mining industry tax hitting thousands of companies.

The Federal Government was forced into major concessions in July, including a drop to 30% and covering only iron ore and coal companies - estimated to have cost $A1.5 billion ($NZ1.89 billion) in lost tax revenue.

The Reviewing the Royalties Regime for Minerals paper outlines proposals on Government revenue from minerals, but not oil and gas, while the Taxation of Specified Mineral Mining paper also excludes oil and gas from its proposals, and coal.

Oceana's chief executive, Mick Wilkes, criticised Mr Heatley in August, warning him of killing the goose laying golden eggs, while Newmont's general manager, Glen Grindlay, threatened to quit multimillion-dollar exploration spending until the issue was resolved.

The delegates and executives were riled their tax and royalty contribution could be rising when the National-led Government has for two years been trumpeting the mining sector could underpin economic recovery.

Mining costs had increased more than any gains in gold prices, putting the viability of many mines under increased scrutiny.

Mr Heatley yesterday reiterated the importance of the mineral sector's contribution to the economy, saying the public understood royalties and tax paid for hospitals, school and roads.

"There is real potential for that contribution to grow," he said.

"The royalties review recommends higher royalty rates for large and highly profitable mining operations."

However, the new rates would only apply to new permits. Existing permits and licences would retain the royalty rate that currently applies," Mr Heatley said in a statement yesterday.

On the tax paper, Revenue Minister Peter Dunne said it was important mining companies paid an appropriate level of tax.

The tax paper looks at rules which apply to miners of specified minerals, including gold, silver and ironsands.

Mr Dunne said the tax paper suggested more closely aligning the current concessionary tax regime for "certain minerals" with general tax principles which applied to other forms of investment.

Specifically, the review suggests removing immediate tax deductions, or in some cases tax deductions in advance, for expenditure which would normally be capitalised and depreciated over the useful life of the asset, he said.

"The mining sector is important but we must ensure that the tax rules do not give the sector an unfair advantage over other investments which may have higher pre-tax rates of return," Mr Dunne said.

Consultation closes on December 7.

simon.hartley@odt.co.nz