11 Apr 2013

Royalty rebate for Western Australian magnetite miners

by Brett Cohen, Mark Joss

The WA State Government has offered aspiring magnetite producers in Western Australia a 50% royalty concession applicable to the first year of magnetite production.

Western Australian Premier Colin Barnett has announced that magnetite producing iron ore companies may apply, on a project-by-project basis, for a 50 percent rebate on royalties paid to the State Government during the first 12 months of magnetite production. The full royalty rate of five percent will apply following the 12-month concession period.

Mr Barnett outlined the concessions, which will be available for magnetite miners for the next three years, on Tuesday at the official opening of the Karara magnetite iron ore project in WA's mid-west. The Karara project, a joint venture project between Perth-based Gindalbie Metals Ltd and Chinese company Anshan Iron and Steel Group Corporation, is Western Australia's first producing magnetite iron ore mine.

Mr Barnett stressed that the magnetite iron ore industry has "the potential to stimulate investment and construction activity throughout the State." Mines and Petroleum Minister Bill Marmion observed that the Karara project alone employed more than 2,400 people during construction, and has created 500 permanent jobs.

However, the magnetite industry has been hampered in recent years by a falling commodity price, by the shelving of the planned Oakajee port, and as a result of the investment required to cover the high processing costs involved in producing magnetite at a quality suitable for export (as compared to the traditional hematite iron ore and other direct-shipping ore that does not require significant processing).

Mr Barnett noted that the rebate "will assist in recovering the massive investment required to achieve production" for magnetite projects. Mr Barnett described the Karara project as a great example of the positive impact of Chinese investment, noting that Western Australia has vast magnetite resources and such ore "is preferred by many Chinese steel mills."

Western Australia currently has 29 potential magnetite projects at various stages of development. The rebate should entice more magnetite miners to follow Gindalbie's lead into production, and hopefully assist those miners in attracting the necessary capital to develop their projects.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.