This Month, the Western Australian Premier, Mark McGowan announced a plan to increase the state levies and royalty payments on gold mines by 1.25% – 3.75% per ounce. This is part of the Australian government plan to repair the country’s finances. This increase in royalty payments will raise more than $422 million over the next four years. This tax will be applied as long as the spot price remains above $AUD1,200 and ounce. When the spot price goes below $1,200 then the tax will be 3.75%.
Gold miners are worried by these hikes as they undercut budgets for exploration. According to geologist, Mark Creasy who is responsible for some of the biggest mineral discoveries in Australia, these royalty charges has contributed to a reduction in investments in exploration. He says that the regulations delay getting cash flow back from explorations.
Australia is the second biggest producer of gold in the world. The country produced more than 278 toms of gold last year and 80% of that gold came from Western Australia. Mining companies say that they cannot afford the rising royalties. The Chairman of Northern Star Resources, Bill Beament has voiced his opinion on how these tax increases could decreasing the production of gold in the long term. To sustain production gold miners will have to pass the additional costs brought on by tax increases. This could mean cutting jobs, halting explorations and not being able to try out new opportunities. It is estimates that 50 mines will be affected by theses taxes. The gold sector is the biggest employer. In total, the entire gold industry in Australia employs 25,000 and 23% of those jobs are in Western Australia. These jobs will now be put at risk.
According to Beament, the gold industry is not a high-margin industry that a lot of people mistakenly assume it to be. Even though the gold price has been going up the costs of production has gone up as well. “15% of gold production in Western Australia is negative.” He said that the government has made the mistake of treating gold mimes and iron ore mines the same even though gold miners face higher exploration costs and infrastructure costs. Gold mines have an average operating life of 5-10 years and for the industry to continue being sustainable constant exploration for new sources is important.
Big mines will be hit with double taxes. This includes a temporary progressive payroll tax scale over a period of five years. Australian employers with a pay roll above $100 million to $1.5 billion AUD will have a portion of the payroll taxed by 6%. The government’s move could put more pressure on an industry that is already experiencing lagging gold supplies due to the weather and more intensive mining techniques to dig deeper for gold.
The global mining production has dropped significantly in the World’s biggest gold producing country, China. According to the China Gold Association, the country’s first quarter production figures dropped by 9.3% dropping from 111.563 tons to 101.197 tons. Analysts believe that the world has neared “peak gold” which means the amount of gold that is mined out will begin to shrink rather than increases every year. There is a significant pushback from mining companies but the long term ramifications of decisions like these will have far reaching consequences.