Most Read Contributor in New Zealand, September 2016
Submissions close on the royalty rates review for
minerals on 7 December 2012.
We commented recently on the companion
discussion paper recommends a hybrid approach with an ad
valorem (AVR) and an accounting profit (APR) component because this
provides both a guaranteed minimum return to the Crown at the
outset of production and upside where the mine is highly
The existing threshold for royalty payments ($200,000 in annual
net sales revenues) will be retained.
The new rates will be applied to new permits only.
Scope of the review
The review covers all other Tier One minerals – commercial
gold, silver, coal, ironsands, platinum group elements
(PGE), phosphates and seafloor massive sulphides
It seeks to apply a more consistent and transparent regime
provides the Crown with a "fair" financial return on
the development of its mineral estate
catches up with movements in commodity prices for gold, silver
and coal since royalties were last reviewed in 2008, and
maintains international competitiveness, particularly against
Petroleum royalties are not subject to review as the Government
considers that they already provide a fair financial return and are
Coal, gold, silver, PGE, ironsands, phosphates and SMS permits:
the higher of a 2% AVR or a 10% APR.
Underground coal gasification: the higher of a 1% AVR or a 10%
APR. This is a holding rate to be reviewed once the project
economics for this mining activity are clearer.
A threshold for applying the APR of $5 million for coal and $2
million for gold, is intended to distinguish the few highly
profitable and productive mines from the many smaller, more
marginal fields. No threshold will apply to other minerals as the
Ministry considers that any future such mine developments would
have to be very large anyway.
Comparison with current rates
$1.40/tonne hard and semi-hard coking
80c/tonne thermal and semi-soft coking
Plus a energy resources levy of $1.50/tonne for South Island
lignite and $2/tonne for opencast coal mines.
Higher of 2% AVR, 10% APR (applied to accounting profits over
The total Crown take from mining (taxes plus the new royalties)
is expected to be around 35% of accounting profit which is thought
to be internationally competitive and likely to have a negligible
impact on future mine development.
However, the new regime, once in place, will be hard to change
so the consultation phase on both the royalties and the taxation
reviews are important. Chapman Tripp's commentary on the tax
paper is available
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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