WA royalty incentive for magnetite producers

THE BOURSE WHISPERER: Western Australian Premier Colin Barnett officially opened the Karara iron ore project this week.

While doing so, Barnett took the opportunity to announce the state’s magnetite projects can now apply for up to 50 per cent royalty.

The new magnetite royalty rebate is to be considered on a project-by-project basis, which Barnett said would provide a much needed boost for the poorer cousins of the Western Australian iron ore industry sector.

Hematite iron ore has long been the favourite of WA based iron ore producers, however Barnett chose the optimum time to announce the new deal while opening the Karara iron ore project of Gindalbie Metals (ASX: GBG), the state’s first producing magnetite iron ore mine.

Karara is the second largest magnetite project in Australia, with production currently being ramped up to its nameplate capacity of eight million tonnes per annum of high-grade magnetite concentrate grading 68 per cent iron.

The project also comprises a substantial direct shipping ore (DSO) hematite business, currently producing at the rate of 2Mtpa.

 

 
“Western Australia has vast magnetite resources and this ore is preferred by many Chinese steel mills,” Barnett apparently said – according to his press release after the event.
 
“This industry has the potential to stimulate new investment and construction activity throughout the state.
 
“However, bringing magnetite ore to grades suitable for export is capital and energy intensive, so this royalty rebate will assist in recovering the massive investment required to achieve production.
 
“This means a rebate of up to 50 per cent of royalties paid will apply for the first 12 months of magnetite production, before returning to the full royalty rate of 5 per cent.”
 
The policy will apply for a three year period from now.

Under the Magnetite Royalty Rebate up to 50 per cent of the 5 per cent royalty on magnetite will be returned to the producer;

There are currently 29 potential magnetite mines at different stages of planning and development in WA;

In 2011, Deloitte Access Economics estimated that a magnetite industry could add $4.5 billion and 4,000 jobs to Australia’s economy – mostly in Western Australia;

The 5 per cent royalty rate for magnetite, compares with a 7.5 per cent rate for haematite, the ore currently exported from Western Australia;

The Karara iron ore project minesite is 320km north-east of Perth, and 200km east of Geraldton;

In addition to the mine and processing facilities, project infrastructure includes 85km of new railway plus upgrades to the existing network; 180km of 330 kV power line from Eneabba to Karara; 140km water pipeline from Mingenew to Karara; and train unloader, storage and handling facilities and berth at Geraldton port.

The announcement was described by Association of Mining and Exploration Companies chief executive officer Simon Bennison as, “most timely.”

“AMEC has been working closely with the WA Government over the past two years in order to develop realistic industry wide royalty concessions that would foster development and growth of the emerging magnetite industry throughout the state,” Bennison said.
 
“Although the proposed royalty rebate will apply on a case by case basis, it is a very positive initiative that will be welcomed by magnetite producers, particularly noting the high up front capital costs in establishing a magnetite mine.
 
“The complex and high processing costs of magnetite beneficiation have also been recognised by this decision.
 
“Despite the fact that the rebate will only apply for the first year, before returning to the full royalty rate of 5 per cent, it will provide magnetite miners welcome financial and cash flow relief and allow companies to develop their business.
 
“The payback to the government will be significant through the flow on effects of job creation and associated economic benefits.”

From what we can gather WA Mines and Petroleum Minister, Bill Marmion, wasn’t allowed to attend the event for some reason but he did, via the Premier’s press release, grab the opportunity to ingratiate himself to his new portfolio participants by claiming the $2.57billion Karara project would produce many benefits for local communities, the region and the state over its expected 35-year life.
 
“In addition to creating important new employment and business opportunities, Karara has made a significant investment in community projects, in Morawa and the Mid-West,” Marmion said in Barnett’s release.
 
WA’s newly-anointed Minister informed us the project employed more than 2,400 people at peak construction and had generated 500 direct permanent jobs.
 
With all the limelight shining on him, Barnett relished the opportunity to relate the good news the opening of the Karara project had to offer saying the project was a major step forward for WA and for the Mid-West region.
 
“The State Government has worked closely with the proponents to get this project up and running and I congratulate them on getting to the production stage,” he said.
 
“Karara is an outstanding example of the positive impact Chinese investment is having in WA.
 
“It is a significant achievement in terms of Chinese investment and a major example of Chinese confidence in Western Australia.”