mineral exploration project – commodity prices – mining stock- trade and market

Fights about proper ownership of natural resources, especially mined product, have been a feature of Australian public policy debate since early settlement. Lack of consultation, arbitrariness and an overweening and greedy government famously caused the Eureka rebellion.

Fast forward to today, we have all these ingredients minus the muskets, plus retrospectivity, sovereign risk, slavering international competitors such as Brazil, Indonesia and South Africa, and a growing capital strike.

Much of the future impact of the Rudd government’s new mining tax is thought to fall on the leading mineral states of Western Australia and Queensland.

This is so. However, the tax will adversely affect every state and territory in one way, shape or form – including Victoria, home of the Eureka Stockade.

First of all, the tax will apply to all non-renewable resources.

According to the Minerals Council of Australia, the Victorian mining industry turns over more than $600 million a year and employs more than 5000 people directly and 10,000 indirectly, most in regional Victoria. This is before we include oil and gas.

Mines are serviced by industries such as transport, explosives and engineering services.

Victoria mines 65 million tonnes of coal a year, which produces 85 per cent of Victoria’s electricity.

Victoria also mines gold, mineral sands, gypsum and kaolin.

The future of the Stawell Gold Mine, for example, is now under a cloud. The mine is the financial backbone of the town of 6000 people, employing 350 staff and generating $55 million for the local economy.

The mine’s owner, Northgate Minerals of Canada, says the mine’s survival depends on constant reinvestment for exploration and projects, and has indicated a concern about the tax.

The local Northern Grampians Shire Council has spoken of the possible flow-on effect to shops, restaurants and the property market.

The quarrying industry employs about 3000 people direct and 7000 indirectly . According to the Victorian Department of Primary Industries, in 2008-09, Victorian quarries produced 48.7 million tonnes of material worth about $703 million. This included the extraction, processing and downstream value-adding of hard rock, gravel, sand, masonry, clay, lime, soil and gypsum, as well as recycling activities.

Resource tax regimes in Canada, Norway and the United States exclude extractive industries, as does the Henry review; but it appears they are included under present proposals.

Victoria is also thought to have significant potential as a future location for gold deposits, mineral sand deposits and base metals.

While more exploration costs can be written off early on under the new arrangements, the ultimate rewards will be less, so the impact of this is unknown. Reaction so far to the new mining tax, however, is suggesting that several proposed projects will be shelved until further notice.

Victoria is home to many global or Australian mining company head offices, such as BHP Billiton, Rio Tinto, Alumina, OZ Minerals and Newcrest, with global companies such as Caterpillar and Orica offering services to mining.

These head offices employ about 2000 people and also purchase significant professional and business services in the area of legal, accounting, communications, recruitment and so forth.

The mining tax could also affect Victorian downstream industries through a regime of increased costs.

Victoria is the heavy manufacturing capital of Australia, with a significant share of automotive, steel and aluminium production. Inputs used include aluminium, iron ore and glass, which is made from sand.

Victoria’s significant agricultural sector uses fertilisers made from phosphate. These industries are already fighting hard against stiff international competition. A higher cost structure courtesy of the federal government is really the last thing they need.

Last, but not least, most industry super funds have their headquarters in Melbourne and many of their customers would indirectly own significant quantities of mining shares, being reliant on them for dividends and capital growth.

In short, the mining tax means that incomes for Victorians will be cut while prices are raised and our industries become less competitive, an unwelcome trifecta affecting our long-term standard of living.

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