Changes to the amount of money miners pay to dig up precious metals in Western Australia have been discussed during government crisis talks as the nickel industry faces the impact of a global price decline.
Key points:
• The price of nickel is currently in a slump.
• In WA, mines have closed, and workers have been laid off.
• The government is contemplating reducing charges for mining companies.
An oversupply in the international market, driven in part by significant supply from Indonesia, the Philippines, and China, has resulted in nickel prices dropping by 43% over the past year. In recent weeks, Andrew Forrest’s Wyloo Metals announced the temporary closure of its Goldfields nickel mines, while Panoramic Resources will shut down the Savannah nickel mine in the Kimberley, resulting in the loss of hundreds of jobs.
Lithium prices have also fallen by 80% in the past year, raising concerns about the future of these “strategic” metals, which are crucial in the country’s transition to renewable energy. Federal resources minister Madeline King and WA mines minister David Michael met with leaders in the nickel and lithium industries, pledging support at both the state and federal levels.
Mr. Michael mentioned proposed reforms to WA’s royalty scheme, based on price and on a sliding scale, which could lead to lower costs for nickel miners in the state. “It’s something that I’ve committed at least to investigating with the sector,” he said. “Royalty reform which will go on for a very long time is something that would affect the government and the mining sector for many years.”
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Currently, WA imposes a 2.5% levy on nickel sales, generating $128 million in 2022. In WA, one of three royalty rates (2.5%, 5%, and 7%) is applied depending on the form of the mineral when it is sold and how much it is processed.
Attempts to change the system in 2017 resulted in a dispute with gold miners after the government sought to increase their payments. A Nationals WA policy to raise fees paid by iron ore miners to the government also led to the political downfall of their leader Brendon Grylls in 2016.
Mr. Michael acknowledged that the willingness of iron ore or gold producers to consider longer-term reform would depend on the specifics of the proposed changes. “It depends what the reform looks like,” Mr. Michael said. “At the moment I’m focused on nickel given they’re the ones with some pending issues due to the oversupply of nickel across the globe.”
Mr. Michael also mentioned the possibility of short-term relief through royalty payment deferrals but could not provide details on the criteria for triggering repayments. “In terms of relief, I’m hoping to get some options at least for the government to consider and to assess their impact on mining operations that are currently on the brink due to price pressures,” he said. Ms. King said she would also present a proposed production tax credit aimed at encouraging mineral processing onshore to the treasury for costing.
Global mining giants, including BHP, were in attendance at the meeting. BHP’s Nickel West asset president Jessica Farrell emphasized the need for Australia to remain globally competitive in strategic minerals. “I think we have a real crisis, and in terms of working on that in Australia, we need speed,” she said.
Lithium, another industry in crisis, has seen a dramatic 80% price drop over the past year. Western Australia currently has a 5% royalty rate on the value of lithium concentrate, contributing 4% of WA’s total royalty revenue. Lithium royalties in Western Australia increased from $60 million in 2021 to $457 million in 2022.
A mining sector surge while market attention remains focused on potential adjustments to stage 3 tax cuts
The Australian share market closed relatively steady as investors shifted their focus from other sectors to invest in mining stocks. There was also anticipation surrounding updates on stage 3 tax cuts, with a Labor caucus meeting scheduled for later in the day. You can stay updated with the day’s financial news and insights from our dedicated business reporters on our live blog.
Today seemed to be characterized by portfolio reallocation within the ASX, rather than significant inflows of new capital. The mining sector saw a notable increase of 1.2%, with a strong performance from lithium, nickel, and rare earths miners that have faced recent challenges. Gold miners also saw gains. The prominent iron ore companies, BHP and Fortescue, both recorded a 1.2% increase, while Rio Tinto saw a 1% rise. This surge in the mining sector was possibly driven by reports of China’s plans to launch a stock market stabilisation fund valued at approximately 2 trillion yuan ($425 billion).
However, Chinese stocks did not fare as well, with both the Shanghai (-0.6%) and Shenzhen (-1.5%) markets experiencing declines, while Hong Kong only managed a modest 0.8% increase after a recent turbulent period. Real estate and utilities on the Australian market each gained 0.9%, and the energy sector saw a slight 0.1% rise. The capital flowing into these sectors seemed to have shifted from consumer staples (-0.7%), healthcare (-0.6%), technology (-0.5%), financials (-0.4%), industrials (-0.3%), and consumer cyclicals (-0.3%).
Among the notable individual stock movements, healthcare technology firm Nanosonics witnessed a significant drop of 33.4% following a trading update that evidently surprised investors.
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