I also think the govt. should approach the banks now with an opt in opt out guarantee scheme. Basically if you opt in you can use the govt g’tee at any future date when/if the govt decides it is necessary to offer it (and can only be used if the govt offers it) but the trade-off is massive restriction on executive/staff remuneration.

Whereas if you choose to opt out now, to bad if markets close you are on your own.

This would really separate boards/executive from their shareholders.

Maybe Zebra will write a piece on this proposal!

On your points as to the lenders behaviour, whatever you think bankers should do in assessing creditworthiness, the fact is that they don’t.

Introducing a RSPT in its current form is effectively placing an extremely high stakes bet that project financiers will start to incorporate any perceived value of the 40% rebate in their credit assessments.

If they don’t (or even it if takes a while for them to do it) you can forget about getting finance in place for a long list of projects that would otherwise have been economic – with obvious consequences for employment and growth.

Have you forgotten the poor performance of the finance industry over the last decade in assessing risk? And the way they’ve effectively dropped the guillotine on commercial lending since 2007?

On that subject, I would suggest that, given the protected banking industry in Australia that is a function of the 4 Pillars Policy, there is a robust argument that the Big 4 banks in Australia should be paying a super profits tax to compensate the country for the economic rents they are generating from being protected. Which is not the same thing as saying the 4 Pillars Policy should be abolished – just that those banks who benefit (at consumers’ expense) should pay for it.

Being in favour of the RSPT is not to be anti-mining. Miners make good profits for their investments. Their efforts are measured by the $ cost of their investment not the sweat on the brow of their geologists or strained muscles of their miners. A $ spent investing in mining is the same as a $ spent investing in a fashion store. Except the $ spent on mining has a much better return. That is how capitalism works. If they weren’t amply rewarded they’d put their capital and resources into other industries.

As for the bankers, we already know that is how mine finance (for stand-alone projects) is arranged currently but it doesn’t mean it has to be that way in the future. Collateral is a way of backing a guarantee and is taken into account in all financing decisions “where it is available”. It is not currently available for stand-alone project run by shelf companies. That is why it is not considered. Why would a mine be treated differently from any other business? Cashflows, collateral, guarantees. These are the inputs into lenders decisions to answer the question “what is the probability I’ll get my interest and capital back?”. An Australian Govt guarantee is AAA rated and doesn’t require collateral. Arguments as to whether it will mean something in the future are already taken into account in the way Moodys and S&P decide sovereign ratings. You may argue against the true validity of AAA ratings but the miners aren’t.

It is interesting that major tax reforms seem to take place every 10 years or so and attracts all sort of heat. The Keating Govt’s reduction of the company tax rate and the introduction of the GST. In both cases these were going to (according to their opponents) destroy the Australian economy if not the very fabric of our society. It is all very familiar. I suppose there is some irony in that the same sort of scare campaign ads are being used against a Labor govt that they used against the coalition over the GST.

Remember the Gold Tax which was going to destroy the gold mining industry because it was “special”? Now the whole mining industry is special. It is an old and argument and seems to apply to every industry.

In one sense that is so. However, nearly all of the minerals currently being mined were present, but not known to man. That is, the deposits were hidden under sometimes hundreds of metres of earth and rock.

How do you think that the Olympic Dam copper/uranium deposit was discovered? It was not always known to be there. It was not discovered by any government. It was discovered by WMC using capital and amazing technical ability. It was one successful project in perhaps hundreds of failed exploration projects. WMC invested that capital and expertise to find Roxby Downs in the expectation that they (and their shareholders) would be appropriately rewarded for the risks they took, and the initiative that they showed.

Also, through this thread there seems to be a misconception about the miners exploiting, for free, the resource assets that are ‘owned’ by the Australian people. I have explained that in nearly every case, the resource assets are there, but not discovered until a mining company invested the capital and expertise to find them. In that sense they did “create” the asset.

But they don’t get to use the asset that they discovered for free. In WA for example, iron ore producers pay a royalty of 7.5% of REVENUE to the state for the use of the resource that they discovered, evaluated, developed and operated. You think that is free??

Further, no one seems to consider the share of total revenue that ends up in the hands of government. Mining companies pay royalties, and 30% corporate tax on profits. They pay payroll tax. Their employees pay income tax. There is GST on supplies. Their suppliers pay income tax to their employees, payroll taxes, corporate tax (if incorporated) and so on. Somebody needs to do the calculation, but I think you would find that for a mine generating $100m a year revenue, a surprisingly large proportion of the revenue ends up in government hands.

Finally, there are many misconceptions in the above about how projects are actually financed. Banks look primarily at net cash flows (after all taxes and royalties) in relation to the capital required. Clearly the RSPT reduces the net cash flow, and thus the financeability of the projects. Another way to think of it is using the concept of payback. The RSPT will inevitably increase the payback period, often to point where the project cannot be financed.

Also, think about the banks attitude to a tax that cuts in on EBITDA, ie before their interest and loan repayments are addressed. Not likely to be attractive to them.

The Tin coinage of an independent Cornish state was ended in 1838 and the Tin duties act established. This was the beginning of the long dark years of taxation.

In 1985 the Tin market crashed making it even harder for marginal operations to survive.

The draconian effective tax rate in the UK at this time has been a terrible dampener on any marginal or low grade ore mining in that very wealthy mining district.

No doubt UK investors once determined on an investment in Australia are reviewing their options more close to home.

Readers will note that the local team at:
http://www.westernunitedmines.com/operations
are doing their best even with this amazing taxation load to carry.

Readers will also note that there are still vast resources available to modern mining techniques in Cornwall, Wales and Lancashire.

The British Geological Survey has even made a easy to read document here:
http://www.bgs.ac.uk/mineralsuk/planning/economy.html

All taxation restricts the mining of low grade ore bodies and abolishes jobs. That is the reason so called “royalties” and income taxation should again be abolished, as they were, until reintroduced 1914.

Our current Australian government policy reminds me of what Ludwig von Mises says in his masterpiece “Human Action” (pp. 686/87):

“Many of the richest deposits of various mineral substances are located in areas whose inhabitants are too ignorant, too inert, or too dull to take advantage of the riches nature bestowed upon them.

If the governments of these countries prevent aliens from exploiting these deposits, or of their conduct of public affairs is so arbitrary that no foreign investments are safe, serious harm is inflicted upon all those FOREIGN peoples whose material well being could be improved by a more adequate utilisation of the deposits concerned.

It does not matter whether the policies of these governments are the outcome of a general cultural backwardness or of the adoption of the now fashionable ideas of interventionism and economic nationalism. The result is the same in both cases..”

Wise thoughtful words to which we all should note well.