Australia’s Gold Miners Gang Up to Thwart Royalty Hike – by Stephen Bell (Wall Street Journal – October 4, 2013)

Western Australia’s Government Is Under Increasing Pressure to Lift Revenue

PERTH, Australia—Gold producers in Australia’s most resource-rich state have banded together to resist any increase in royalties on sales of the precious metal, fearing a further blow to an industry already battered by falling prices and rising costs.

The Western Australian government is reviewing royalty payments on a range of minerals produced in the state as it seeks to boost revenue in the face of weaker commodity prices, and to tackle ballooning debt that has knocked down its credit rating.

Gold miners have been concerned ever since the premier of the state, Colin Barnett, told the state legislature last week that the current royalty on sales of the metal—currently 2.5%—was “a little light” compared with those for other minerals.

Western Australia’s Gold Royalties Response Group, which successfully lobbied against a previously mooted royalty increase three years ago, Friday said it had reformed.

The biggest producers in the 10-strong group are South Africa’s Gold Fields Ltd., GFI.JO -0.73% which recently bought three mines in the state from Barrick Gold Corp. ABX.T -0.64% and U.S.-based Newmont Mining Corp. NEM -0.59% Smaller homegrown peers, including Perth-based Doray Minerals Ltd., DRM.AU +0.77% are also involved.

The group said it was preparing a submission to the government’s review before the end of the month and would then seek meetings with Mr. Barnett, as well as the state’s mines and petroleum minister.

Doray’s managing director, Allan Kelly, said a higher royalty may cause more gold mines to shut down following a spate of closures and redundancies over the past few months.

“Anything that adds to the cost base has the potential to make some of these mines marginal,” he said in an interview. He added that a hike in royalty payments could also undermine future investment in the industry at a time when companies like Barrick have already abandoned gold mines in the country’s biggest gold-producing state.

Gold miners paid 218.9 million Australian dollars (US$205.6 million) in state royalties in 2012—up 4% on the previous year as global bullion prices surged. Gold was one of the saving graces for the government after mineral and petroleum royalties in the state fell by the same percentage to A$5.1 billion amid falling commodity prices linked to China’s slowdown.

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