PERTH (miningweekly.com) – The Association of Mining & Exploration Companies (Amec) has warned the Western Australian government, ahead of its Budget, that an increase in the gold royalty rate would be detrimental to investment in the sector.

Speculation emerged this week that the state government is considering hiking the current 2.5% production royalty, after Premier Mark McGowen pointed out that gold miners are not covered by State Agreements.

“Outside of State Agreements Acts, governments can make decisions so we will hand down our Budget next week,” McGowan was quoted as saying by The West Australian.

“If there is any truth in the current media speculation that there could be an increase in the gold royalty rate it would be a simple ‘cash grab’ and economically senseless,” said Amec Simon Bennison said on Friday.

“The rumour has already created investor and industry uncertainty and needs to be immediately quashed by Premier McGowan or Treasurer Ben Wyatt before the Western Australian state Budget is handed down and before it manifests any further.

“The industry, as a whole, needs certainty in public policy settings for investment and business decision-making. This is absolutely essential, particularly with royalties and taxes as they are major business input costs.”

Bennison noted that if there was a decision to increase the gold royalty rate, the economic and social consequences of doing so would be immense.

“There would unquestionably be job losses in the drilling industry as exploration and mining companies would need to wind back their exploration programmes. Those companies would also need to cut staff within their own operations to cover any additional royalty expense.”

Bennison said that there would also be the inevitable loss of any additional royalty revenue through the goods and services tax (GST) re-distribution process to the benefit of other states and territories, while the job losses would be felt in Western Australia.

Bennison has also warned that an increase in the gold royalty rate could impact future gold operations.

“We need to be encouraging gold mining and not creating additional financial barriers which may shorten the mine life.

“Gold mining operations and methods are not homogenous, particularly with underground operations, strip ratios and grades. A one-size-fits-all approach cannot be taken and applied to royalty rate calculations.

“The industry is faced with fewer discoveries and mines being exhausted. Any increase in royalties will result in declining regional employment. The McGowan government should adopt the same position as the previous Barnett government in maintaining the ‘status quo’ on royalty rates, and commit to that now,” said Bennison.