19 September 2012

Queensland government calls for EOI in it’s lucrative bauxite leases

The Queensland government has called for expressions of interest in its lucrative bauxite leases in far north Queensland, but with a twist, the private sector must come up with initiatives to financially benefit Cape York indigenous communities. Initiatives could include traditional owners being given direct equity in the project, a cash payment or jobs and business opportunities on the mine.

Pechiney of France originally held the leases offered by the government, but these were removed from them in 2004. The tender for the Aurukun leases was later won by Chinese group Chalco, which agreed to the condition that it establish an alumina refinery at Abbot Point. The refinery was not economically viable, however, and the Queensland government again took the leases back.

With much of the same profitability issues that hampered Chalco’s refinery development in 2010 still in existence (weak macro economic conditions, low metal prices and a strong Australian dollar), it is unsurprising that the new Queensland government has decided to offer the leases without the requirement that the bauxite be refined in Queensland.

Premier Campbell Newman stated that “the Bligh Government ran a strategy whereby it would lease the bauxite to a company under the condition it established a refinery or expanded refinery capacity. Their strategy of leasing the bauxite under the conditions of establishing a refinery simply will not work.”

Despite the fact that Aurukun’s bauxite ore is not as high quality as Rio Tinto’s Weipa or that at the South of Embley project, there is still expected to be significant interest in the leases. Mr Newman further stated that

“… over the coming months we will now go to the market and seek fresh expressions of interest and by April next year we expect to shortlist bidders to participate in a tender process for the right to develop the resource.”

A decision is expected by the end of 2013.

17 September 2012

Coal industry uproar over State budget’s increase in mining royalties

The LNP Government’s first State budget has caused a stir in the Queensland coal industry after last week announcing an increase in mining royalties of up to 50 per cent per tonne, to commence 1 October this year.

In an attempt to stabilise State debt levels, the government expects to raise $1.6 billion over four years by increasing the coal royalty from 10 per cent, to 12.5 per cent for coal prices above $100 per tonne and 15 per cent for coal prices above $150 per tonne.

Queensland Treasurer, Tim Nicholls, said the government is obliged to deliver extra money to fund mining infrastructure projects, such as RG Tanner, Abbot Point and Connors River Dam. He said that the State did not receive extra money in the Federal Government’s budget this year for the infrastructure. Mr Nicholls addressed the Mineral Resources Rent Tax (MRRT) and claimed “Queenslanders should receive the benefits of the resources they own, not the Commonwealth. As the value of State royalties paid is netted off against MRRT liabilities, the incidence of taxation ought not to increase”.

However, the MRRT presupposes that Queensland miners will face significant MRRT liabilities. It was designed during the peak of the resources boom to capture super profits. Queensland Resource Council’s Michael Roche dismissed the notion that coal companies will be able to offset the new State royalties against the MRRT obligations. He said, “it’s hard work to find a coal mine in Queensland making a profit, let alone a super profit”.

The coal industry has argued the increased coal royalty is another governmental tool, along with the MRRT and carbon tax, that is squeezing them from both sides, with coal prices slashed and their costs continuing to rise. The problem that coal producers face will be if there is a marginal difference between the spot price of coal that is over $100 and the cost of production.

According to Wilson HTM analyst, Andrew Pedler, the spot price of hard coking coal is around $US155 a tonne as opposed to about $US150 cost of production in Queensland. Mr Pedler said the notion of increased royalties does not take into account increasing costs; “it just takes notice of the top line”.

XStrata Coal claimed that a significant portion of the coal industry was unprofitable at current prices and that “there is a risk that the increase in royalties could result in production cutbacks in marginal operations.” He predicted that as a consequence, estimates regarding the amount of additional royalty revenue may be optimistic.

Yancoal took on a different attitude. Managing Director, Murray Bailey, acknowledged that the royalty change was concerning but said that the exchange rate was having a bigger impact on profits.

The government guaranteed that coal royalties in Queensland will not be increased for a ten-year period. However, this promise is seemingly flawed; constitutionally, it is not enforceable since a parliament cannot bind the next to not change the law.

This post is written by Freehills Mining Lead Partner Jay Leary

13 September 2012

NSW Strategic Regional Land Use Package unveiled

What’s new?

The NSW Government has today released the long awaited final Strategic Regional Land Use package (SRLU Package). The SRLU Package contains a suite of new plans, policies and codes aimed at reducing land use conflicts between agricultural land use and mining and coal seam gas (CSG) projects. The SRLU Package provides the NSW mining and CSG industry with some much needed certainty as to how the mining and CSG industry will be regulated going forward.

So what is the SRLU Package? 

The Strategic Regional Land Use package consists of:

  1. the Strategic Regional Land Use Plan - New England North West;
  2. the Strategic Regional Land Use Plan - Upper Hunter;
  3. the Aquifer Interference Policy; and
  4. two CSG specific codes of practice:
  • the Code of Practice for Coal Seam Gas - Well Integrity; and
  • the Code of Practice for Coal Seam Gas - Fracture Stimulation Activities.

For further information follows this link to Freehills latest NSW Environment and Planning update.

10 September 2012

A strange thing happened at Africa Downunder

A strange thing happened at the annual Africa Downunder conference in Perth last week, and it had nothing to do with the record attendance of more than 2,500 delegates from Australian and overseas mining companies, service providers, financiers and governments.

It was the vastly different, almost conflicting, messages coming out of senior Australian government ministers who spoke at the conference.In one corner, was Australia’s current Foreign Affairs minister Bob Carr. In the other, was former Prime Minister and subsequent Foreign Minister, Kevin Rudd. Both seasoned political campaigners well equipped to speak of the importance of Africa to the hundreds of delegates that crammed into the Riverside Ballroom.

Carr had clearly studied his briefing notes as he lauded the role that Africa has and will play in Australia’s economic and social development, challenging the conventional wisdom that we were all living witnesses to the ‘Asian century’. In Carr’s words, “what we’ve seen since 2000, could well be an African century”. Heads nodded in agreement, media bulletins were issued. Job done.

Rudd, however, appeared far less interested in talking about Africa, focusing almost his entire speech on the continued rise of China whilst launching the release of the “Fuelling the Dragon” report by the ASPI and the Brenthurst Foundation.

In contrast to Carr, Rudd began his speech declaring that “the core question confronting treasuries and finance ministries around the world at present is what is the near, medium and long term prospects for the Chinese economy.” There was less head nodding, more head scratching. Little mention was made of Africa. In fact, in the entire 20 minute speech Rudd mentioned Africa on fewer than four occasions.

One might readily conclude that Rudd’s last minute call-up in place of the ill Resources minister, Martin Ferguson, meant that a ‘revert to type’ presentation was inevitable for the former Prime Minister. Whatever the reasons, the contrast in the political messages from two of Australia’s most senior government ministers at Australia’s largest mining conference, was striking. But were they conflicting?

One conclusion that is easily drawn from the presentations and discussions with participants during the three day conference, is that they are not conflicting messages – that Africa probably needs China more than it needs Australia, but that China needs Australian expertise, resources and know-how to unlock its growing need for natural resources.

During a conference breakfast, hosted by BDO, Herbert Smith Partner, Michael Walter, joined other panellists to discuss and field questions from the audience on the impact that China’s growing need for “rocks and crops” is having on Australian mining companies’ business plans for Africa, and how we can work effectively with China in our collaborative African mining pursuits.

According to Michael, the huge amount of interest in Africa, and relationships with China, was much in evidence in a great turnout for the breakfast briefing and some thoughtful and searching questioning.
Austrade also hosted a luncheon which saw Senior Trade Commissioner for Sub-Saharan Africa, John Madew, speak about the importance of our government’s role in assisting Africa with the three “A”s – access, advice and advocacy. In his speech, CEO of Fortescue Metals, Andrew Forrest, urged Australian mining companies to replicate the high environment standards that they display in their Australian operations across their African operations. He also highlighted the importance of Australian mining companies investing in corporate social responsibility programs that make a sustainable difference to the lives of the African communities in which they operate.

With the impending merger of Freehills with international law firm Herbert Smith due to launch on 1 October, the conference was a great networking opportunity for the respective Freehills and Herbert Smith mining teams and a tremendous success generally.

Herbert Smith Freehills will provide clients with an impressive global mining practice boasting over 30 years of experience advising across the entire continent of Africa in both French and English. With offices strategically placed in Perth, Singapore, Shanghai, Beijing, Paris, New York and London, and an office to be opened on the ground in Guinea, Herbert Smith Freehills’ mining clients will benefit from seamless service all the way from the office in Australia, China or Europe, to the minesite in Africa.