CME warns of royalty-induced mine closures, 3 000 job losses

PERTH (miningweekly.com) – The Western Australian Chamber of Minerals and Energy (CME) on Tuesday warned that about 3 000 jobs would be on the line if the state government moved ahead with its proposed hike in gold royalties, while some mines were also facing closure.

The Western Australian government announced a 50% increase in royalty charges in its state Budget earlier this year. The current 2.5% rate will apply for each month when the gold spot price is A$1 200/oz or less, and an increased rate of 3.75% will apply when the gold spot price is above A$1 200/oz.

The CME said that modelling had revealed that the royalty hike would cost the jobs of over 10% of the 25 000 staff employed in the gold sector, and could cost A$44.9-million in royalties.

“No industry can cope with an unexpected 50% increase in a major cost,” said CME and CEO Reg Howard-Smith.

He pointed out that at current gold prices, five operating mines on a margin of less than 10%, were at risk of closing, and at a gold price of A$1 400/oz, an additional five operating mines were at risk.

“The analysis demonstrates not only are jobs at risk, but so too is government revenue. The five mines at risk at the current gold price currently pay A$46.5-million of royalties. If they are forced to close by the government’s budget action, the government will lose this revenue,” Howard-Smith said.

Data from the CME found that the royalty rate increase of 1.25% would absorb about A$125-million of industry cash flow each year, with the additional cash expenses to be funded most likely through reductions in payroll, the purchase of goods and services, free cash flow, cash-backed retained earnings, discretionary capital and investment or exploration activity.

Howard-Smith said that while the A$20/oz increase in all-in sustaining costs, resulting from the increased royalty rate, appeared minimal in the context of the current gold price, it was being imposed in a climate of declining profitability at a corporate level, and where a significant number of existing mines were marginal.

Gold miner Saracen Mineral Holdings MD Raleigh Finlayson said on Tuesday that the data confirmed warnings from the gold sector were not empty rhetoric.

“Treasurer Ben Wyatt said he wanted to see the numbers from the gold industry. Well here are the numbers, and they are devastating,” Finlayson said.

“Up to 3 000 jobs will go from Western Australian gold mines and a further 2 000 if the gold prices were to drop to A$1 400/oz. This does not include the flow-on impact in the many small businesses and suppliers that support the sector.”