Mining royalties pathetic

Written By: - Date published: 10:52 pm, June 29th, 2010 - 32 comments
Categories: Conservation, Mining - Tags:

We learned yesterday that Newmont pays no royalties on the gold and silver it digs up at Martha mine. That’s gold and silver that belongs to the New Zealand public and we get nothing for it.

Now, that is the result of grandfathering of a previous special permit when the Crown Minerals Act was passed in 1991. New permits, including Newmont’s other mines do have to pay royalties. But here’s the rub, those royalties are so pathetic that Newmont openly doesn’t give a crap about paying them. Newmont’s man – in what was surely a move that earned him some trouble with the boss – said that as a $193 million a year concern they don’t give a damn about pay $3.6 million a year in royalties on their other mining and would happily pay the less than a million per annum that would be due if the Martha mine’s production was subject to royalties too.

I don’t know about you but it struck me as incredible how blase Newmont is about paying royalties.

But why wouldn’t they be? After all, paying royalties on Martha would amount to just 0.5% of Newmont’s turnover from gold mining in New Zealand and bring their total royalties bill to a pathetic 2% of the value of the our gold that they get to dig up to sell. This is an industry that made a 29% pre-tax profit in 2008, while paying just 7% of turnover on wages and 1% on royalties.

Mining conservation land (or offshore mining and drilling) is even more profitable – no private landlords so no leases to pay – which is why they’re so for it. They’re making off like bandits, and it’s our common treasure they’re stealing.

The first principle is we don’t dig up our most valuable conservation estate – ever. We’ve had the debate on which land should be protected. National, supported by the conservation movement and Labour, created schedule 4 in the 1990s to protect the most precious land. It must stay protected.

Our mineral wealth is a one-off endowment. Once we let someone dig it up, it’s gone forever. We need to get the most for it. Where we do allow mining, which is most of New Zealand and contains most of the mineral wealth, we have to make sure we are getting far larger royalties for our minerals. And, when that mining takes place on Crown-owned land, the Crown must charge leases as private owners do.

32 comments on “Mining royalties pathetic”

  1. RedLogix 1

    And look how long Rudd lasted after he touched this issue.

    Interesting thought arises; is there anywhere in the world that does have a sensible royalty regine?

    • In a word ? No.

      “Our” resources and those of all peoples around the world are “owned” by the same ruling elite “owning” the oil , the war machine, the trillions of resources in Afghanistan and if “our” army gets its hands on some nice drones “our” resources will be owned by the same ruling elite and if the have to bomb us back to the stone age to get it they will.

  2. QoT 2

    (Psst, Marty, paragraph 5: classic not-homonyms-but-close-enough typo. /pedant)

  3. Armchair Critic 3

    Great post, Marty
    Where mining is permitted, the government should copy the dairy industry and its use of sharemilkers. The government supplies the land and some of the infrastructure, the mining company supplies the rest of the infrastructure and does all the work, the profits are split 50/50. And if the mining company doesn’t make a decent profit they are off.

    • Herodotus 3.1

      AC at some stage there will be enough profit to lure some mining coy irrespective of the conditions place on them. Just like oil, once you mine the easiest resource the 2nd in line becomes the easiest.

      • Armchair Critic 3.1.1

        I know.
        It seems inevitable that mining for some things will happen for the rest of my lifetime. So rather than letting the government accept, on our behalf, no royalties (like Newmont’s Martha mine), or SFA royalties (like Newmont’s Favona mine), I want them to demand 50%. If that results in mining companies not investing in NZ, so be it.

  4. vto 4

    If the mining companies are making such huge windfall profits then the government is better to not waste time on silly royalties and instead simply go mining itself….

  5. tc 5

    Bomber on Stratos last night summed up this situation nicely….let’s trash the clean green image all our exporters leverage off in order to get top dollar year in and year out for a pittance of royalties only available once. Bonkers any way you look at it.

    Rudd didn’t go over the mining tax alone, Rudd went because of Rudd and the mining tax will get done as Australians realise it’s their key resource and unlike milk/sheep etc once it’s gone it’s gone.

  6. tsmithfield 6

    Several points overlooked in Marty’s article.

    1. The mining company invests the money and takes the risks.
    2. There is considerable employment that results with PAYE going back to the government.
    3. Also, likely purchases of equipment and services from local industry further benefiting employment and returning GST on those purchases back to the government.
    4. Company tax paid by the mining company on profits.
    5. The 2% royalty is therefore just the icing on the cake for much greater benefits for the economy and the government coffers. As pointed out in my first four points there is a lot more gain than the 2% royalty. Therefore Marty’s article is a bit ingenuous.

    • Pascal's bookie 6.1

      All of that stuff would still happen if they were also paying us a reasonable amount for our gold. So it’s beside the point.

      Unless paying us for our gold would make the deal uneconomic, in which case why are we subsidising their uneconomic bidness?

      • tsmithfield 6.1.1

        If we get too greedy then the mining companies might not invest at all. (Look at the effect that getting too greedy has been having in Australia recently for example.) Then we wouldn’t get all the other “stuff” as you call it. Company tax on their profits is already effectively a “royalty” as the country would be earning this if the mining companies weren’t digging the stuff up in the first place. When you look at it like that (28% company tax plus 2% royalty) the return isn’t too bad.

        Of course, we could nationalise mining and do it ourselves. But this would mean that we would have to front up with the funds to invest in plant, machinery, running costs etc. If the results weren’t as good as expected then we may have done worse than picking up 30% from the mining company at no risk whatsoever.

        IMO 30% return for no risk is not a bad outcome (not even counting all the other benefits I pointed to above).

        • Pascal's bookie 6.1.1.1

          nah, we have different words for company tax and royalties because they are not the same thing. But yeah, if we pretended they were the same thing then we would be pretending that you had a point.

          You have a problem with the whole ‘reality vs shit you imagine’ concept dontcha dimbulb? I can sympathise, bookie junior struggles with it at times too, but that’s cool. He’s 3.

          • tsmithfield 6.1.1.1.1

            They are the same thing to the extent that no mining by private companies = no company tax and no royalties. Something even your three year old should be able to grasp.

            • Pascal's bookie 6.1.1.1.1.1

              But he can also grasp that you are, once again, basing your argument on imagining things are different than what they are. He calls this ‘fibbing’ and ‘stupid’.

              I mean look at this crap:

              “If we get too greedy then the mining companies might not invest at all”

              that’s what does the work in your argument and lord almighty is it stupid.

              Obviously if we get ‘too greedy’ then shit might not work. That’s just a fucking tautology. “I’m totally against unnecessary violence” Big deal.

              “Greedy”

              Why is asking for mining co’s to pay a reasonable royalty for extracting our gold greedy in any damn case?

              Thing is, we are getting ripped off, you are justifying that by saying that ‘ooh, if we don’t let them rip us off, they might not rip us off’.

              If we don’t let them mine it, it isn’t going anywhere, it stays in the gound. We still have it sitting there, oozing it’s potentiality. If those greedy feckers want it, then they can bloody well pay for it.

              • tsmithfield

                Here are the options Pascal, spelled out nice and simple:

                Option 1. We leave the stuff in the ground with all that “potential”. But to realise the potential, someone has to dig it up sometime to realise the potential.

                Option 2. We invest truckloads of public money to dig it up ourselves. But considerable money is put at risk and the return is not guaranteed.

                Option 3. We allow someone else to invest their own money to dig the stuff up and take all the risks. We take company tax from them plus a royalty that is at a level that doesn’t eliminate their motivation for investing in the first place.

                Now, I agree with you that if we can squeeze more than 2% out of them, then we should do that. However, the argument for more than 2% seems soley based on the premise that 2 is a small number and should be bigger. This is piss poor justification for the argument IMO.

                • Pascal's bookie

                  For someone who thinks that “if we can squeeze more than 2% out of them, then we should do that. you’ve spent a strange amount of time and effort arguing against people who are suggesting that squeezing more out of them should be looked at.

                  Oh noez, you sez, they will run away, leeave them aloooooone. They pay tax so we are already getting a good price for the gold. etc.

                  • tsmithfield

                    What I have been pointing out is that the country actually gets a lot more than the 2% royalty all things being considered. So when Marty points out- shock-horror- we only get a 2% royalty from the mining companies, he is not giving the full story.

                    Who knows, when it all boils down 2% might not be too bad.

        • Bright Red 6.1.1.2

          The mining companies are making 29% profit on digging up our minerals and selling them. That’s too much.

          We should be getting our share. You could cut their profit to 10% and it would still be a viable investment, and New Zealand could get the rest.

          • tsmithfield 6.1.1.2.1

            On what basis do you say 29% is too much and 10% is cool? What is the ROI on assets? Is it better than keeping their money in the bank for no risk?

            You need to do a bit more complex analysis before you start throwing profit figures around.

    • Lanthanide 6.2

      “Also, likely purchases of equipment and services from local industry further benefiting employment and returning GST on those purchases back to the government.”

      You know that companies don’t pay GST, right?

      captcha: quietly

      • tsmithfield 6.2.1

        Of course. But end consumers do. So, to the extent that money flows eventually into the hands of consumers who in turn spend the money there is an increased return from GST.

    • Pete 6.3

      Good on you Marty – even tsmithfiled thinks you’re openly straightforward about this:

      ingenuous, adj:
      1. Lacking in cunning, guile, or worldliness; artless.
      2. Openly straightforward or frank; candid. See Synonyms at naive.
      3. Obsolete Ingenious.

      To borrow from QoT – /pedant.

      Sorry, couldn’t help myself tsmithfield.

      And for the record, I’d personally like to see the real numbers attributed to the points you raise – they’re not bad – but I don’t reckon they’d be nearly as significant as you posit – off the top of my head. And certainly if you look to Waihi itself, or talk to the locals, it’s hardly a boom town.

  7. Pepeketua 7

    hmmm, well there are around 300 or so mining jobs in Waihi – the mean salary is way below the national average (not to mention the average of surrounding towns)… it’s not ‘good for the economy’ to mine… it’s ‘good for the international mining companies’.

    and its time we started to challenge the govt’s mantra of ‘balance between economy and environment’. We ALREADY have that balance – that’s why those areas of schedule four land were set aside (in perpetuity) as being too significant to mine. every time the govt says ‘well, it’s about balance’, they are talking about slicing off another cost to the environment, to add to the private wealth coffers. that might be a miniscule slice in one year (or not), but the point is the CUMULATIVE effects of all of those slices over time equals a constant and steady degradation of our most protected places.

    will someone PLEASE start challening this ‘balancing the environment and economy’ paradigm? i’d ask a journalist to do it, but… it’s not a story about NZ’s fattest zoo animals or images of penguins playing soccer at Kelly Tarlton’s (shame on you Campbell!).

    • Pascal's bookie 8.1

      but ts sez it’s a no-risk venture for the peons, I mean citizens. So obviously these facts are not true becasue they aren’t accounted for in his head.

      • tsmithfield 8.1.1

        The environmental risk is really more to do with the question of whether there should be mining or not. These problems could occur whether private companies or the state does the mining. I am assuming that there is a good environmental management plan in place and that whoever does the mining has insurance to cover their risks and has done a sound evaluation of those risks.

        In the article above it is assumed that mining is going ahead and that 2% royalty is not enough. What is the justification for saying its not enough? Is it because 2 is a really little number? I am saying that this figure can’t be viewed in isolation from the other financial benefits that the government and economy derive.

    • Pete 8.2

      But Newmont take all the risk associated with the homes/roading etc falling into a sinkhole. Displacement or losing everything should really be of no concern for the Waihi community.

      Thank God for that.

  8. joe90 9

    Newmont are up to their elbows in conflict minerals but no doubt ts will say that’s okay too.

  9. Len 10

    Let them take the profits, any future labour government would just waste them on on basket weaving courses etc

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