17th September 2021
I'm sorry to intrude on your Friday with a newsletter about tax, but it bears talking about because several major mining economies have significant news in this arena that could affect projects in those countries heavily. We'll be looking at new tax and royalties proposals in Russia and the US, as well as having a peek at Rio's tax woes in Australia.
Let's start with the home of the brave. The Natural Resources Committee in the US House of Representatives has made additions to the proposed $3.5 trillion reconciliation spending measure floating around Congress that would add fees for miners operating on federal land. The current language adds an 8% royalty for existing mines and 4% for new ones, as well as a 7 cent charge for each ton of rock moved. This is interesting because, unlike many other mining jurisdictions, the US has not imposed royalties since the legislation governing the sector was passed in 1872. This is because, at the time, there was a desire to develop the vast tracts of land in west of the country that needed investment, and the lack of royalty payments was deliberately targeted at encouraging that.
Now, miners in the USA are saying that royalties would have the same cooling effect on investment and production today as they would 150 years ago. This article includes statements from the heads of several companies indicating that more payments to the government would stifle their operations, including Phil Baker of Hecla Mining Co. (NYSE:HL), the country's largest silver producer, saying that he will close currently operating mines if the royalty measures are implemented. Others suggest that the proposal is at odds with the US's stated goals of greening electricity and transport, since it would affect the desire of miners to produce the hard-rock products that will fuel that transformation. This might catch the attention of the government from a national security perspective, since it's widely thought that the US would prefer to produce its own raw materials as much as possible in order to avoid reliance on shaky international markets and potential adversaries, although President Biden has directly pushed back on that idea, explicitly stating in May that the US would rely on allies for raw materials for electric vehicles. Personally, I'm sceptical that there's much for miners to worry about here because it seems unlikely that these measures will pass the US Senate, if they even make it through the House, but stranger things have certainly happened in US politics.
Crossing the Bering Strait we find a proposal similar in spirit, if not in execution, under consideration in Russia. The finance ministry there has suggested a moving mineral extraction tax (MET) that would depend on global prices and the quantities of ore mined, which seems to be part of Russia's effort to increase revenue to government coffers in recent months in the face of increasing costs, particularly of national defence and state infrastructure projects. As a result, the MET is targeted particularly at iron ore, coking coal and fertilisers, which have direct benefits for those projects, as well as on nickel, copper and platinum group metals, which are the chief products of Russian mining giant Nornickel (MCX:GMKN, LSE:MNOD). The finance ministry also proposed a reserve option: raising the profit tax from 20% to 25-30% in circumstances where companies spend more on dividends than capital expenditures over the preceeding five years. This is a very clear signal the the government wants companies to invest more heavily in projects in Russia, which President Putin explicitly called for in March this year.
Finally, let's take a quick look at the tax strife faced by Rio Tinto (ASX,LSE,NYSE:RIO) in Australia. The Australian Tax Office (ATO) has hit it with an amended bill of $379 million AUD over borrowing between the Australian and UK units of the company which was used to pay dividends, which Rio says is all very normal and above-board in the corporate world. This figure actually represents a decrease in the ATO's demands, which saw the interest charged for the non-payment revised downwards since the bill was first handed down in March. This comes on top of a dispute that is playing out over a $86.1 million AUD tax bill relating to aluminium sold by Rio to its own Singapore marketing hub between 2010 and 2016, which the ATO says the company did not charge an appropriate price for. Rio disputes this, and the Australian and Singaporean tax authorities are hashing the matter out at the moment. Just to complete the picture, Rio is still in the process of disputing a 2017 tax bill of $447 million AUD over transfer pricing of iron ore.
It seems that, like the rest of us, large mining companies are not immune from the grinding inevitability of taxes in this life.
Around the Traps
Rupert Resources (TSXV:RUP) and Spotlight hosted a really exciting investor update this Wednesday, focussing on Rupert's phenomenal sucess in moving the Ikkari gold project from discovery to 4 Moz. in just 18 months. If you missed out on seeing it live, you can see the whole presentation below, or on YouTube here.
Spotlight also visited Rupert in Finland recently, and were seriously impressed with what we saw. Check out CEO, James Withall, discussing Ikkari in this video (plus some stunning shots of the local area!).
Mountain Boy Minerals (TSXV:MTB, OTCQB:MBYMF) have announced the appointment of Fraser Ruth as Manager of Investor Relations and Kirsti Mattson as media relations consultant. MTB are clearly looking to communicate the high quality of their projects to as many investors as possible. Good luck to the new team!
That's all from me this week, I hope you slide comfortably into the weekend!
- Jane Lockwood