PERTH (miningweekly.com) – The Western Australian government on Thursday admitted that a gold royalty hike was not aptly-timed, but cautioned that it could still be a reality.

Speaking at Paydirt’s gold conference, in Perth, director-general for the Department of Mines and Petroleum Richard Sellers acknowledged that the gold industry was facing a tough period with lower commodity prices and higher operating costs.

He added that the state government would take this into consideration when making its decision on gold royalty in its current royalty review.

“When things are hard, this is not the time to be making great changes to the system,” Sellers said.

“We have in our terms of reference the recognition that any outcome [of the royalty review] is not to further complicate or to make struggling industries harder to operate in.”

However, Sellers warned that this did not mean that the review would not come up with suggestions for the future.

He added that a royalty on gold could be complicated, considering the varied producers in the industry.

“You have some high-cost producers and some others that are likely to have better grades and thus produce at a lower price per ounce. And the difficulty in that is to design a system that caters for that, and it could be very hard.

“So my gut feeling is that it will stay a simple process,” Sellers said.

Advisory firm Deloitte on Thursday reiterated its warnings on the possible outcomes of a royalty hike in the gold sector, with partner Matt Judkins telling delegates that a royalty rate would mean a cost increase for gold miners.

“The royalty rate increase would affect the margins of operations, and miners would have a few options, the first of which is to take it on the chin,” Judkins said.

He noted that industry participants could also look at reducing costs of operations, while a third option would be to increase the cutoff grades of operations.

“This would have the effect of sterilising some projects and could reduce the mine life of others,” Judkins warned.

There are 29 producing gold operations in Western Australia, which delivered a combined 5.8-million ounces in 2012/13. The state produces around 70% of Australia’s total gold output and accounts for 9.3% of global gold production.