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2008
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
URANIUM ROYALTY (NORTHERN TERRITORY) BILL 2008
EXPLANATORY MEMORANDUM
(Circulated by authority of the Minister for Resources and Energy,
the Honourable Martin Ferguson AM, MP)
1
FINANCIAL IMPACT STATEMENT
The Commonwealth will be in a revenue neutral position for new projects containing
designated substances on non-Aboriginal Land Rights (Northern Territory) Act 1976
land as the Commonwealth would be required to make payments to the Northern
Territory Government of amounts equivalent to the royalties collected.
The Commonwealth will be in a revenue negative position for new projects
containing designated substances on Aboriginal land, as declared under the Aboriginal
Land Rights (Northern Territory) Act 1976, as the Commonwealth would be required
to make two payments of amounts equivalent to the royalties collected - one payment
to the Aboriginals Benefit Account and one payment to the Northern Territory
Government.
However, this will make uranium royalties consistent with the existing Northern
Territory mineral royalty regime for other minerals. Additionally, this royalty regime
will obviate any additional administrative complexity for Northern Territory royalty
collection processes, especially in relation to poly- metallic mines containing
designated substances, i.e. where a Northern Territory and Commonwealth royalty is
liable.
REGULATORY IMPACT STATEMENT
The Regulatory Impact Statement is provided in Attachment A.
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URANIUM ROYALTY (NORTHERN TERRITORY) BILL 2008
OUTLINE
1. The Uranium Royalty (Northern Territory) Bill 2008 ('the Bill') will apply the existing
profits-based mineral royalty regime under the Mineral Royalty Act 1982 (NT) ('the
MRA') to new projects containing designated substances, including uranium, on
Aboriginal land, as defined by the Aboriginal Land Rights (Northern Territory) Act
1976 ('the ALRA'), and non-Aboriginal land.
2. The definition of designated substances includes uranium and other prescribed
substances as defined by the Atomic Energy Act 1953, for which the Commonwealth
retains ownership.
3. The Bill excludes the application of certain Commonwealth la ws, makes certain
modifications to the application of the MRA as a Commonwealth law and applies
other relevant Northern Territory laws to: (1) keep the administration of the Bill as
consistent as possible with the administration of the MRA; (2) restrict the amount of
additional burden on Northern Territory officials to administer the two pieces of
legislation; and (3) limit any increase in regulatory burden on industry in complying
with two sets of regulation for separate projects and/or for poly- metallic projects
containing designated substances.
4. The Bill provides for the Northern Territory to administer the royalty regime on
behalf of the Commonwealth, to retain the royalties collected, and to repay any
overpayment of royalties on behalf of the Commonwealth.
5. Where mining occurs on Aboriginal land, the Commonwealth is obligated under
section 63(1) of the ALRA to make payments of amounts equivalent to royalties from
the Consolidated Revenue Fund to the Aboriginal Benefits Account. This payment
would be in addition to the payment to the Northern Territory of amounts equivalent
to the royalties collected under the Bill.
6. The Bill requires the Commonwealth Minister for Resources and Energy and the
Northern Territory Treasurer to agree on administrative arrangements prior to
enabling the operation of the Bill. The administrative arrangements will be made
publicly available via the Gazette.
7. The Bill recognises and permits the use of the Northern Territory judicial system and
other relevant authorities, procedures and laws to ensure consistency of process
between action arising from offences under the Bill and action arising from offences
under the MRA.
8. The Bill provides for the Governor General to make Regulations as necessary to
ensure the intended operation of the Bill, including making necessary and rapid
modifications resulting from unintended consequences arising from the amendment or
repeal of the MRA.
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NOTES ON CLAUSES
PART 1 - PRELIMINARY
Clause 1 Short Title
9. This clause provides that the Act may be cited as the Uranium Royalty (Northern
Territory) Act 2008 ("the Act").
Clause 2 Commencement
Subclause 2(1) Table
Item 1
10. Sections 1 and 2 and anything not otherwise covered by the Table will commence on
Royal Assent.
Item 2
11. Sections 3 to 20 will commence on either the day of P roclamation, or six months and
one day after Royal Assent, whichever is earliest.
12. A period of six months is provided for the Northern Territory Government to enact
consequential amendments to relevant NT legislation, including the Mining Act (NT),
to reflect the new arrangements and preserve existing arrangements for the Ranger
mine.
13. If the Northern Territory Government does not enact such amendments within six
months of Royal Assent of the Act, the Act will automatically be proclaimed six
months and one day after Royal Assent. This provision is included to ensure the
royalty regime is in place prior to the possible commencement of production from a
number of new projects containing designated substances within the next few years.
Subclause 2(2)
14. The additional information contained in column 3 of the table does not form part of
the Act.
Clause 3 Simplified Outline
15. This clause provides a short description of the Act. The Act imposes a royalty on
uranium and certain other designated substances recovered in the Northern Territory
by applying the MRA, as modified by clause 6, as a law of the Commonwealth.
Clause 4 Definitions
16. This clause provides definitions for a number of terms used generally in the Act.
applied law This term refers to the provisions of any Northern
Territory law that also applies as a Commonwealth
law for the purposes of the Act. This term is used in
clauses 7, 10, 11, 12, 13, 14, 15, 16, 17 and 18.
authority of the Northern This term refers to persons in the Northern Territory
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Territory that are able to exercise or perform a power, duty or
function under any Northern Territory law. This term
is used in clauses 7 and 14.
corresponding applied law This term refers to an applied law that also applies
under the MRA. This term is used in clause 16.
corresponding Northern This term means the MRA as it applies to
Territory royalty law non-designated substances in the Northern Territory.
It is also means any other relevant Northern Territory
mineral royalty legislation and regulations which may
be updated from time to time. This term is used in
clause 13.
designated substance This term defines the substances for which royalties
are payable under the Act. This term is used in clause
6.
Designated substances are the prescribed substances
defined under the Atomic Energy Act 1953 as:
(a) uran iu m, thoriu m, an element having an atomic nu mber
greater than 92 or any other subs tance declared by the
regulations to be capable of being used for the production of
atomic energy or for research into matters connected with
atomic energy; and
(b) any derivative or co mpound of a substance to which
paragraph (a) applies.
that are naturally occurring; can be obtained (or are
obtainable) from land in the Northern Territory by
any mining method; and are owned by the
Commonwealth. The Commonwealth retains
ownership of prescribed substances in all Australian
Territories, including the Northern Territory, under
s35 of the Atomic Energy Act 1953.
This term excludes designated substances in the
Ranger Project Area, therefore preserving the pre-
existing royalty arrangements for the Ranger Project
Area. The Ranger Project Area is excluded because
the Ranger mine is the only operating uranium mine
in the Northern Territory and the only royalty
determination which is currently in place.
modifications This term means changes to an Act or Regulation and
includes additions, omissions and substitutions. This
term is used in clauses 6 and 15.
Northern Territory law This term means any law, or an instrument made or
having effect under a law, in force in the Northern
5
Territory. This term is only used in the definitions.
Northern Territory royalty Means the Northern Territory Mineral Royalty Act or
law any other Northern Territory law that is relevant to
the operation of the Mineral Royalty Act. For
example, the Northern Territory Interpretation Act
and Criminal Code apply for the purposes of the Act.
This term is used in clauses 6, 13 and 16.
Proceedings Means any proceedings, whether civil or criminal and
whether original or appellate. This term is used in
clause 13.
Ranger Project Area This term has the same meaning as it is described,
immediately before the commencement of the Act, in
Schedule 2 to the Aboriginal Land Rights (Northern
Territory) Act 1976. This term is only used in the
definitions.
responsible Northern This term refers to the Northern Territory Treasurer
Territory Minister who is responsible for the administration of the
Mineral Royalty Act. This term is used in clause 7.
Clause 5 Crown to be bound
17. This clause applies the Act to the Australian, State and Territory Governments and
makes clear that although a Government must comply with any requirements imposed
on it by the Act, nothing in the Act makes the Government liable to be prosecuted for
an offence.
PART 2 - APPLICATION OF NORTHERN TERRITORY ROYALTY
LAWS IN RELATION TO DESIGNATED SUBSTANCES
Clause 6 Application of Northern Territory royalty laws in relation
to designated substances
Subclause 6(1)
18. This clause applies the MRA as a law of the Commonwealth as modified by
subsections 6(1)(a) and 6(1)(b).
19. When enacted, the Act shall be read separately from the unmodified version of the
MRA, which applies a royalty regime to non-designated substances, i.e. to all
minerals which the Northern Territory owns.
Subclause 6(1)(a)
20. This subclause allows for additional modifications to be made to the application of the
MRA through Regulations.
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Subclause 6(1)(b)
21. This subclause omits, amends and inserts provisions into the MRA as necessary for
the purposes of the Act.
Item 1 The effect of omitting subsection 3(8) is to allow the application of the
MRA as a Commonwealth law for uranium and other designated
substances.
Item 2 The effect of this amendment means that authorized persons under the
MRA are also authorized persons for the purposes of the Act. This will
allow Northern Territory government officials to administer the Act on
behalf of the Commonwealth.
Item 3 The definition of corresponding Northern Territory Royalty Act is
added to differentiate between the Act and the MRA.
Item 4 The definition of designated s ubstances is added and linked to the
definition used in the Act to ensure consistency in meaning.
Item 5 This amendment to the definition of mine ral has the effect of limiting the
application of the Act to designated substances, i.e. only to uranium and
other designated substances which the Commonwealth owns under s35 of
the Atomic Energy Act 1953.
Item 6 The effect of this amendment means that the Secretary appointed under the
MRA is also the Secretary for the purposes of the Act. This assists in
giving the Northern Territory Treasury the authority to collect royalties on
behalf of the Commonwealth.
Item 7 This amendment means that mining tenement holders will be required to
make payments of royalties directly to the Northern Territory (instead of
the Commonwealth) and that the Northern Territory will, in effect, be
acting as an agent for the Commonwealth.
The amounts of royalties collected by the Northern Territory on behalf of
the Commonwealth are public moneys and will automatically form part of
the Consolidated Revenue Fund (CRF) on collection. The rate of royalty
is defined under s10 of the MRA.
Item 8 The effect of this addition means that any additional amounts of royalty in
respect to designated substances shall be paid to the Northern Territory
Treasury, on behalf of the Commonwealth.
Item 9 The effect of this addition means that any amounts of interest payable in
respect to unpaid royalties for designated substances shall be paid to the
Northern Territory Treasury, on behalf of the Commonwealth.
Item 10 The effect of this addition means that any amounts of penalty royalty in
respect to designated substances shall be paid to the Northern Territory
7
Treasury, on behalf of the Commonwealth.
Item 11 The effect of this addition means that any amounts of penalty royalty in
respect to designated substances shall be paid to the Northern Territory
Treasury, on behalf of the Commonwealth.
Item 12 The effect of this addition means that any amounts of royalty payable in
respect to designated substances shall be paid to the Northern Territory
Treasury, on behalf of the Commonwealth.
Item 13 This amendment clarifies that amounts of overpayments retained are
retained by the Northern Territory Treasury on behalf of the
Commonwealth; and amounts of overpayments payable to the royalty
payer shall be made by the Northern Territory Treasury on behalf of the
Commonwealth.
Clause 7(6) provides the authority for the Northern Territory to make
payments of public moneys on behalf of the Commonwealth.
Item 14 Omitting subsections 49AA(1) and (2) means that the Minister
administering the MRA (i.e. the Northern Territory Treasurer) retains the
power to appoint the Secretary for the purposes of the MRA.
Item 15 This amendment applies the secrecy provision of the MRA to the Act in
respect to Northern Territory employees and/or contractors.
See item 18 for information on the application of secrecy provisions on
Commonwealth employees.
Item 16 This amendment allows employees of the Northern Territory Treasury
performing a function under this Act to communicate information or
produce a document for the purpose of carrying out that function under the
Act.
Item 17 This amendment allows the communication of information and documents
between employees of the Northern Territory Treasury and the Northern
Territory Department of Regional Development, Primary Industry,
Fisheries and Resources for the efficient administration of the Act.
Item 18 This addition allows the communication of information between
employees of the Northern Territory Treasury and the Minister for
Resources and Energy and/or the employees within the Minister for
Resources and Energy's department (currently the Department of
Resources, Energy and Tourism).
Employees in the Australian Public Service (APS) are employed under the
Public Service Act 1999 and are bound by the APS Code of Conduct which
includes, amongst other things, the obligation for APS employees, when
acting in the course of APS employment, to abide by all Australian laws.
Division 2.1 of the Public Service Regulations 1999 applies secrecy
provisions to APS employees and includes a note explaining that, pursuant
8
to section 70 of the Crimes Act 1914, it is an offence for an APS employee
to publish or communicate any fact or document which comes to the
employee's knowledge, or into the employee's possession, by virtue of
being a Commonwealth officer, and which it is the employee's duty not to
disclose.
Item 19 This amendment applies particular secrecy provisions to Northern
Territory employees for the purposes of the Act.
Subclause 6(2)
22. This subclause makes the effect of subclause 6(1) subject to the operation of the Act.
Subclause 6(3)
23. This subclause makes it clear that clause 6 will not have effect until an arrangement
with the Northern Territory, pursuant to clause 7, is in place. It is intended that
administrative arrangements be negotiated between the Commonwealth Minister for
Resources and Energy and the Northern Territory Treasurer.
Clause 7 Arrangements with the Northern Territory
24. This clause refers to the administrative arrangements that must be in place to enable
the operation of the Act.
Subclause 7(1)
25. The administrative arrangements shall be between the Minister administering the Act
(currently the Commonwealth Minister for Resources and Energy) and the Northern
Territory Treasurer and will outline a number of administrative matters includ ing (but
not limited to) apportionment principles for poly- metallic mines, reporting obligations
and dispute resolution processes arising from disputes between the Commonwealth
and the Northern Territory Governments.
Subclause 7(2)
26. Once the administrative arrangements are in place, the parties to the administrative
arrangements are required to act in accordance with the arrangements.
27. For example, if the administrative arrangements include a provision for the Northern
Territory Treasury to provide the Department of Resources, Energy and Tourism a six
monthly report of the amounts of royalty collected, then the Northern Territory
Treasury must provide such reports.
Subclause 7(3)
28. The Ministers can vary or revoke the administrative arrangements at any time.
However, the Ministers cannot vary or revoke the administrative arrangements
unilaterally; the Minister wishing to vary or revoke the arrangements must obtain the
other Minister's agreement.
Subclause 7(4)
29. The administrative arrangements, including any subsequent agreement to vary or
revoke the administrative arrangements, must be documented in writing.
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Subclause 7(5)
30. The document setting out the administrative arrangements, including any subsequent
agreement to vary or revoke the administrative arrangements, must be published in the
Commonwealth Government Gazette.
Subclause 7(6)
31. This subclause provides an express authorisation for persons who are neither
Ministers nor officials in (or part of) a Financial Management and Accountability Act
1997 ('FMA Act') agency (considered "outsiders" under the FMA Act) to receive,
have custody of, and make payments from the moneys collected on behalf of the
Commonwealth. This gives the power for Northern Territory Treasury officials to
collect Commonwealth money on behalf of the Commonwealth and be consistent with
the FMA Act.
32. The ability to receive, have custody, and make payments from the moneys collected
on behalf of the Commonwealth is limited to the Northern Territo ry Treasury and
authorized persons in the Northern Territory as defined by the Act.
Clause 8 Tax laws not applied
33. This clause clarifies that the royalty obligation arising from the Act is not a tax.
Clause 9 Appropriation law not applied
34. This clause means that the Commonwealth will not have the power to spend Northern
Territory money.
Clause 10 Applied laws not to confer Commonwealth judicial
power
35. This clause means that the Commonwealth will rely on the Northern Territory judicial
powers for the purposes of the Act. This power is consistent with the royalty regime
for other minerals.
36. Refer to clause 12 for further information.
Clause 11 Applied laws not to contravene constitutional
restrictions on conferral of power on courts
37. This clause ensures that powers that are not allowed to be conferred under the
Constitution are granted to the NT in respect to the operation of the Act.
PART 3 - MISCELLANEOUS
Clause 12 Jurisdiction of Northern Territory courts
38. This clause means that the Northern Territory judicial powers will be used for the
purposes of the Act.
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39. For example, if there is an offence against the Act, the Northern Territory will be
responsible for prosecuting the person/s in a court within its jurisdiction.
Clause 13 Procedure in proceedings under applied law
40. This clause means that the procedures used to prosecute persons under the MRA will
also be used to prosecute persons under the Act.
41. Subclause 13(2) makes it explicit that a jury shall used for proceedings brought by
way of indictment for offences against the Act.
Clause 14 Grant of pardon, remission etc.
42. This clause means that the Northern Territory shall use the same powers and functions
under the Northern Territory law in respect to granting pardons, remission etc for the
purposes of the Act.
43. This clause provides for the Governor General retain the option to use her powers as
required for the purposes of the Act.
Clause 15 Certain Commonwealth laws do not apply in relation to
applied laws
Subclause 15(1)
44. This clause sets out the Commonwealth laws that do not have affect for the purposes
of the Act.
45. The Commonwealth laws that do not apply are the Acts Interpretations Act 1901,
Chapter 2 of the Criminal Code and prescribed Commonwealth laws.
46. These Commonwealth laws do not apply as the corresponding Northern Territory
power will be applied in respect to offences to maintain consistency with the royalty
regime for other minerals.
Subclause 15(2)
47. This subclause means that the regulations may specify other Commonwealth laws that
shall have affect for the purposes of the Act from time to time.
Clause 16 Application of Commonwealth laws in relation to applied
laws
48. This clause helps ensure that the Northern Territory royalty laws, which operate as
laws of the Northern Territory, and those laws as they are picked up and applied as
Commonwealth law by the Bill, have a uniform application.
49. Specifically, this clause provides that if a Commonwealth law applies to, or contains a
reference to, a Northern Territory law, that Commonwealth law will also be taken to
apply to, or contain a reference to, the Northern Territory law as picked up and
applied by the Bill as Commonwealth law.
50. Without this clause, it is possible that a Commonwealth law might be expressed to
apply to and affect the operation of a Northern Territory royalty law, but not a
Commonwealth law including the corresponding Northern Territory law as picked up
and applied as Commonwealth law.
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Clause 17 Payments by the Commonwealth to the Northern
Territory
Subclause 17(1)
51. This subclause allows amounts equivalent to the royalty, penalty and interest collected
by the Northern Territory on behalf of the Commonwealth to be transferred from the
Consolidated Revenue Fund to the Northern Territory.
52. Any royalties arising from mining on Aboriginal land, as defined under the ALRA,
and paid to the Northern Territory Treasury on behalf of the Commonwealth require a
payment into the Aboriginal Benefits Account under s63(1) of the ALRA. In respect
to the mining of designated substances under the Act, the payments to the Aboriginal
Benefits Account of amounts equivalent to royalties collected will be a matter for the
Commonwealth.
Subclause 17(2)
53. This subclause provides for the overpaid royalty amounts collected by the Northern
Territory, on behalf of the Commonwealth, to be repaid by the Northern Territory into
the Consolidated Revenue Fund.
Clause 18 Appropriation
54. This clause specifies that all moneys payable by the Commonwealth under the applied
law or the Act must be paid from the Consolidated Revenue Fund.
55. As clause 6 (item 13) allows the Northern Territory to repay overpayments on behalf
of the Commonwealth, the Northern Territory must make these repayments from the
Consolidated Revenue Fund.
56. These repayments to persons/companies will be revenue neutral for the
Commonwealth as the Northern Territory is required by subclause 17(2) to repay
overpayments into the Commonwealth Revenue Fund.
Clause 19 Regulations
57. This clause provides for the Governor General to make regulations to ensure the
carrying out or giving effect of the Act.
58. This clause is primarily included to ensure that in the event that the Northern Territory
passes amendments to, or repeals, the Mineral Royalty Act in a way which is
inconsistent with the Commonwealth's position; the Commonwealth is able to make
any appropriate amendments quickly to continue the intended operation of the Act.
59. The Regulations will be Legislative Instruments for the purposes of the Legislative
Instruments Act 2003; and shall be subject to the usual tabling and disallowance
regime under the Legislative Instruments Act 2003 and to scrutiny by the Regulations
and Ordinances Committee.
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ATTACHMENT A
REGULATION IMPACT STATEMENT
ON THE DEVELOPMENT OF A ROYALTY REGIME FOR NEW URANIUM MINES
IN THE NORTHERN TERRITORY
1. The problem or issues which give rise to the need for action
1.1 The objectives of the Australian Government's Uranium Industry Framework
(UIF) initiative, announced in August 2005, include the reduction of impediments to
the development of Australia's uranium resources. One of the impediments identified
is the uncertainty surrounding fiscal arrangements applying to uranium development
in the Northern Territory (NT) where the Commonwealth retained ownership of
uranium minerals when it granted self-government to the NT in 1978.
1.2 To date royalty arrangements have been determined for three NT uranium
projects (Ranger, Narbalek and Jabiluka) by the relevant Australian Government
Minister on a project by project basis taking into account a range of factors, including
the world market for uranium, any non-statutory payments to Aboriginal communities,
the loss or damage likely to be suffered by Aboriginal communities affected by the
proposed mining interest and the royalty rate set for other mines.
1.3 The Ranger mine is the only uranium mine currently operating in the NT. Its
royalty of 5.5% ad valorem is composed of three components - 2.5% which is the
royalty applicable on Aboriginal reserves under the then NT Mining Ordinance,
1.75% which is the notional negotiated payment for traditional owners (the Australia
Government pays the sum of these first two components (4.25%) into the Aboriginal
Benefits Account (ABA) 1) and 1.25% which the Australian Government pays to the
NT Government as a grant in lieu of royalty under the terms of a 1978 Memorandum
of Understanding between the Commonwealth and NT Governments. The 1.25%
paid to the NT Government equates to the royalty rate for minerals under the NT
Mining Ordinance at the time of self-government in 1978.
1.4 The Narbalek deposit was relatively small and mining was completed in 1988
and the mine site rehabilitated. An ad valorem royalty of 3.75% applied to the
Narbalek operation. The Jabiluka mineral lease, which is yet to be activated,
specifies an ad valorem royalty of 5.25%. The Jabiluka royalty comprised two
components of 4% payable into the ABA and 1.25% payable to the NT Government.
However, this royalty arrangement applied only until 30 June 1990 and the project
has not proceeded.
1.5 Industry requested that the arrangements for determining uranium royalties in
the NT be reviewed so that potential investors in new uranium exploration and mining
projects in the NT would know the applicable royalty arrangements upfront. This
1
The Aboriginal Benefits Account (ABA) is established and maintained under Section 62 of the
Aboriginal Land Rights (Northern Territory) Act 1976 to receive royalty equivalent payments in
respect of mining on Aboriginal land in the NT and to make payments to Aboriginal co mmunit ies
(30%) affected by mining operations on their land, to Land Councils fo r their ad min istration costs and
for general Aboriginal developments in the NT.
would improve regulatory certainty for investors should the Australian Government
decide to allow an expansion in uranium mining.
1.6 The Government's responsibility is to establish a regulatory framework
conducive to investment and for private investors to undertake investment in
exploration and mining within that framework based on their overall assessment of
the range of factors and the risks involved. The royalty regime facing potential
investors is only one factor which potential investors in exploration and mining take
into account in deciding where to invest. The geologic potential, political stability,
land access issues, and overall taxation regime are likely to be of equal or greater
importance than the royalty regime. While growing world energy demand and
climate change issues are expected to result in growth in uranium mining, it is not
possible to predict how many new uranium mining projects are likely to be
established in the NT.
1.7 In the NT, non-uranium minerals are subject to the Mineral Royalty Act 1982
(NT). The royalty regime is this Act involves a profit-based royalty applied at 18% of
net receipts (revenue minus specified costs including operating costs, exploration
costs and an allowance for capital costs including plant and equipment). Royalty
regimes vary throughout the jurisdictions in Australia - there is no common royalty
regime. In South Australia, the only other jurisdiction in which uranium is presently
mined, the royalty applicable to all minerals, including uranium, is 3.5% ad valorem
(ie, 3.5% of revenue). Tasmania applies a hybrid royalty to most minerals of 1.6% of
net sales plus a profit royalty of 1.6% with a maximum royalty limited to 5% of net
sales. Other jurisdictions apply a variety of different royalty regimes to different
minerals.
2. The desired objective(s)
2.1 The Commonwealth, States and Territory Governments own the petroleum
and mineral resources within their jurisdictions on behalf of the community. The
Governments impose resource taxes or royalties on petroleum and mineral
production to ensure that the community receives a fair share of the value generated
from the development of community-owned resources. As noted above, the
Commonwealth retained ownership of uranium minerals in the NT when it granted
self-government to the NT in 1978.
2.2 The objectives of the exercise are to establish an efficient royalty regime to
apply to new uranium projects developed in the NT so that regulatory certainty for
potential investors in new uranium exploration and mining projects in the NT will be
improved by them knowing the applicable royalty arrangements upfront, and to
ensure that the community receives a fair share of the value from the development of
uranium resources.
3. The options (regulatory and/or non-regulatory) that may constitute viable
means for achieving the desired objective(s)
3.1 The non-regulatory option would be for the Government to not charge
royalties for uranium produced in the NT. This is not a tenable option as uranium
producers would receive the resource free of charge and the community would not
receive any share of the value generated from the development of community-owned
uranium resources.
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3.2 With regard to regulatory options, three types of royalty options were
considered. These were an ad valorem royalty, profit-based royalty and a hybrid
royalty.
Ad valorem royalty
3.3 An ad valorem royalty is levied as a percentage of the revenue (output and
price). Ad valorem royalties are relatively stable and predictable and easily
administered. Because they are based on revenue only, ad valorem royalties are
payable from project commencement to close down and can therefore deter
investment, particularly in respect of marginal projects, and also result in premature
mine closure as the resource is depleted and unit costs increase.
Profit-based royalty
3.4 Profit-based royalties take account of revenue and costs and are thus more
economically efficient and less distorting of investment decisions compared with ad
valorem royalties, which are based only on revenue. Under a profit-based royalty
regime, little or no profit may be earned, and thus little or no royalty may be payable,
in the initial years of a mining operation and towards close down as resource is
depleted and mining costs per unit increase. Profit-based royalties are thus a more
efficient form of resource charge that allows producers to mine more of the resource,
particularly in times of lower prices and higher costs. A profit-based royalty regime
also enables windfall gains from strong market conditions to be shared between
investors, Government and the community.
3.5 The NT's profit-based royalty is applied at 18% of net receipts (revenue minus
specified costs, including operating costs and an allowance for capital costs including
plant and equipment). It is sensitive to changes in commodity prices, the amount of
ore extracted and the costs of extraction. Because of the greater amount of
information required from companies to calculate the royalty payable, profit-based
royalties are generally more administratively complex than an ad valorem royalties.
However, the NT Government has applied the profit-based royalty to non-uranium
minerals under its Mineral Royalty Act 1982 (NT) since 1982 and the mining industry
is familiar with its operation.
Hybrid royalty
3.6 A hybrid royalty system combines an ad valorem with a profit-based royalty.
A hybrid royalty offers the flexibility to avoid the possibly unsatisfactory revenue
outcome for government of a purely profit-based royalty, while reducing the
possibility of efficiency losses which may occur under a pure ad valorem royalty.
However, the optimal mix between the ad valorem and profit components is difficult
to establish. Hybrid royalties trade off economic efficiency for a measure of revenue
predictability while maintaining the administrative complexity of a profit-based royalty.
Modelling exercise
3.7 A full and development cycle economic modelling exercise of a uranium
mining project scenario was conducted under ad valorem, profit-based (18% of profit
as per the current NT royalty regime), and hybrid royalty regimes, for Aboriginal and
non-Aboriginal land to provide broad indicative comparisons of the outcomes which
the application of each of the three royalty types would yield for the uranium
producer, the Government and the traditional owners. The royalty options also used
15
base case and upper case price assumptions and a notional privately negotiated
royalty to traditional owners of 1.75% was also included so the returns from
exploration and mining on Aboriginal and non-Aboriginal land could be compared. A
summary of the economic modelling is at Appendix 2 and details of the modelling
methodology are provided in Appendices 3 and 4.
3.8 It is inherently difficult to compare the outcomes from ad valorem and profit-
based regimes over the life of a mine. An ad valorem royalty, which is a percentage
of revenue, would apply from the commencement of mining while a profit-based
royalty regime takes account of revenue and costs and the actual royalty payable
would rise and fall with profitability. The NT's profit-based royalty recognises the
costs related to uranium extraction as eligible deductions and the project may
therefore pay no royalty for the first few years. Any comparison between ad valorem
and profit-based royalties can therefore be regarded as indicative only, as changes to
cost and price parameters can produce significantly different outcomes.
3.9 Based on the specific parameters in the modelling exercise undertaken for
the URS, an 18% profit-based royalty approximates an ad valorem rate of about
2.9% at a price of US$30 per pound of uranium oxide and 5.4% at a price of US$36
per pound of uranium oxide. Indicative ad valorem royalties in other jurisdictions are
3.5% in South Australia, and 5% in Saskatchewan. South Africa is in the process of
introducing new royalty legislation under which uranium will attract an ad valorem
royalty of 3%.
3.10 Where mining occurs on Aboriginal land in South Australia, any negotiated
royalties agreed between mining companies and traditional owners are additional to
the statutory royalty. If the notional 1.75% negotiated royalty is added to the 18%
profit-based royalty, the total of the statutory and negotiated royalties under the
modelled scenario approximates 4.6% ad valorem at a price of US$30 per pound of
uranium oxide and 7.1% at a price of US$36 per pound of uranium oxide. This
compares with the Ranger 5.5% ad valorem royalty which includes a 1.75% notional
traditional owner negotiated royalty.
3.11 While uranium spot prices have increased substantially since the modelling
exercise was done, it is noted that Australian Mineral Export Statistics for the March
quarter 2007 indicate that the average export price for uranium oxide was US$30.16
per pound of uranium .2
4. An assessment of the impact (costs and benefits) on consumers, business,
government, the environment and the community of each option
(a) Impact on consumers of uranium
4.1 Any royalty, whether determined on a case by case basis under the old
arrangements, or under any of the three royalty options considered would be
a component of the price paid by uranium consumers.
2
Australian Mineral Statistics, March Quarter 2007, ABA RE indicates that 1,725 tonnes of uraniu m
oxide were expo rted at a value of A$142 million wh ich converts to A$37.34 per pound or US$30.16
per pound at the Reserve Bank o f Australia exchange rate of A$1.00 = US$0.8070 at 30 March 2007.
16
(b) Impact on Business
Ad valorem royalty:
4.2 The Ranger and Jabiluka deposit are large and high grade and their
ad valorem royalties are relatively high by international standards. New uranium
mining projects are likely to be based on smaller deposits, so their economic viability
could depend on the level of royalty. Because ad valorem royalties are based on
revenue only, they would be payable from project commencement to close down and
can therefore deter investment, particularly in respect of marginal projects, and also
result in premature mine closure as the resource is depleted and unit costs increase.
While ad valorem royalties are generally easier to administer (as they are a
percentage of the project's revenue), they are less economically efficient because
they take no account of costs.
4.3 The modelling indicated that an ad valorem royalty has the greatest adverse
impact on investors and could act as a disincentive for investment in new uranium
mines under difficult economic conditions, particularly on Aboriginal land.
4.4 Implementing an ad valorem royalty for uranium would result in uranium
continuing to be treated differently for royalty purposes from non-uranium minerals in
the NT.
Profit-based royalty:
4.5 Profit-based royalties take account of revenue and costs and thus are more
economically efficient and less distorting of investment decisions compared with ad
valorem royalties, which are based only on revenue. Under a profit-based royalty
regime, no profit may be earned, and thus no royalty may be payable, in the initial
years of a mining operation and towards close down as resource is depleted and
mining costs per unit increase. The Ranger and Jabiluka deposit are large and high
grade and their royalties are relatively high by international standards. As new
uranium mining projects are likely to be based on smaller deposits, they would be
more likely to proceed under a profit-based royalty.
4.6 Profit-based royalties are generally more administratively complex than ad
valorem royalties because of the greater amount of information required from
companies to calculate the royalty amounts payable. However, the existing profit-
based mineral royalty regime in the NT has been in place for 25 years and the NT
Treasury and the NT mining industry are familiar with its operation and
administration. At an early stage in the development of a new mining project which
would be subject to the NT's Mineral Royalty Act 1982, the NT Treasury, as the
royalty administrator, would meet with the relevant company to make sure the
company is aware of the format of royalty returns, resolve any valuation issues (eg,
where there are transactions between related companies), and agree on the
composition of the deductible costs and the records it will need to keep to meet its
compliance and audit obligations. Royalty returns would be submitted on a 6
monthly basis with any adjustment made at the end of each 12 month period. As
each project will be different, it is not possible to determine the proportion of costs
which would be attributable to compliance with royalty requirements.
4.7 The outcomes of the modelling scenario indicated that a profit-based royalty
was likely to provide investors with the greatest potential for a positive return over the
life of a mine.
17
4.8 Bringing uranium under the existing NT mineral royalty regime would make
uranium royalties consistent with the regime applying to non-uranium minerals and
obviate additional compliance costs in relation to poly-metallic uranium mines.
Because of the nature of uranium, uranium mining has been subject to more
stringent regulatory and environmental requirements. However, there is no reason
why uranium should be treated differently from non-uranium minerals for royalty
purposes.
4.9 In consultation during policy development, there was discussion of whether
royalties negotiated by traditional owners for mining on Aboriginal land should be an
allowable deduction in calculating a statutory profit-based royalty. Some stakeholders
disagreed with this because:
negotiated royalties in respect of other minerals produced on Aboriginal land in
the NT are additional to the statutory royalty and not deductible in its calculation;
privately negotiated royalties with other landowners or tenement holders are not
deductible in calculating the statutory royalty;
it would result in uranium being treated differently for royalty purposes from other
minerals on Aboriginal land in the NT;
it would add a complexity to administration of the NT's profit-based royalty regime
in respect of new uranium mines, and particularly poly-metallic mines which
include uranium; and
of concerns that it would diminish the statutory royalty which would accrue to the
Australian Government and thus to the NT Government and the ABA.
4.10 Industry supports a uranium royalty regime that is the same as the royalty
regime generally for minerals in NT.
Hybrid royalty:
4.11 Hybrid royalties trade off economic efficiency for a measure of royalty
revenue predictability for Government while maintaining the administrative complexity
of a profit-based royalty. Establishing a hybrid royalty regime for uranium would add
administrative complexity for industry. The compliance requirements would involve
maintaining information to comply with the ad valorem component of the royalty, plus
the information required to comply with the profit component of the royalty, as
described in paragraph 4.6 above.
(c) Impact on Government
Ad valorem royalty:
4.12 An ad valorem royalty would be more likely to provide a more predictable
royalty revenue flow for the Australian Government and thus to the NT Government
from project commencement to close down. However, because an ad valorem takes
no account of costs and would be payable from project commencement, it could
therefore deter investment, particularly in respect of marginal projects, (which would
result in no royalty being payable if no project eventuates) and also result in
premature mine closure as the resource is depleted and unit costs increase.
4.13 Implementing an ad valorem royalty for uranium would result in uranium not
being treated consistently for royalty purposes from non-uranium minerals in the NT.
18
Profit-based royalty:
4.14 Profit-based royalties take account of revenue and costs and thus more
economically efficient and less distorting of investment decisions compared with ad
valorem royalties. Under a profit-based royalty regime, no profit may be earned, and
thus no royalty may be payable, in the initial years of a mining operation and towards
close down as resource is depleted and mining costs per unit increase. Profit based
royalties are therefore more encouraging of investment in resource development,
which is consistent with Government economic policies, and enable windfall gains
from strong market conditions to be shared between investors, the Government and
other stakeholders. Though profit-based royalties are generally more
administratively complex than ad valorem royalties, the NT mineral royalty regime
has been in place for 25 years and the proposal involves the NT Treasury
administering royalty collections on behalf of the Australian Government.
4.15 Implementing the NT's profit-based royalty for uranium would make the
uranium royalty regime consistent with the existing NT mineral royalty regime which
would obviate any additional administrative complexity for NT royalty collection
processes, especially in relation to poly-metallic uranium mines.
Hybrid royalty:
4.16 Hybrid royalties trade off economic efficiency for a measure of revenue
predictability while maintaining the administrative complexity of a profit-based royalty.
Establishing a hybrid royalty regime for uranium would add administrative complexity
for the NT Treasury in administering the uranium royalty on behalf of the Australian
Government.
General Comment:
4.17 The current Ranger royalty arrangements were determined by the relevant
Minister in 1980. Of the 5.5% ad valorem Ranger royalty, 4.25% is paid into the ABA
and 1.25% is paid to the NT Government as a grant in lieu of royalty at the existing
rate, as required under the 1978 MOU on financial arrangements between the
Commonwealth and the NT Governments. This means that the royalty collected has
a neutral effect on Government revenue. In practice, the NT Treasury administers
and collects the royalty on behalf of the Australian Government and pays it to the
Australian Government which then makes the above payments to the ABA and the
NT Government.
Since the Ranger royalty arrangements were determined, the Aboriginal Land Right
Act 1976 has been amended so that the equivalent of all royalties from mining
projects on Aboriginal land must be paid into the ABA. In addition, the NT royalty
regime has changed to a profit-based rate of 18% (as distinct from the 1.25% ad
valorem which applied under the NT Mining Ordinance prior to 1982). This means
that whatever new royalty regime is put in place, the Australian Government will need
to pay the equivalent of all the royalties collected for uranium into the ABA. In
addition, to meet its obligation under the 1978 MOU to pay a grant in lieu of royalties
to the NT Government, the Australian Government will need to make an equivalent
payment to the NT Government.
19
The outcome would be that royalty collections would no longer be revenue neutral,
because the Australian Government would be required to pay the equivalent of the
royalty collected to both the ABA and the NT. However, this would place uranium
into the same situation as non-uranium minerals in the NT (ie, NT collects and retains
the royalty and the Australian Government pays an equivalent amount into the ABA).
(d) Impact on the environment
4.18 Royalties per se would have no effect on the environment as every new
uranium mine approved and established would be required to pay a royalty.
Because ad valorem royalties are less efficient (as described above) they could deter
marginal investments and in this regard reduce the environmental impact. However,
this would be counter to the objective of encouraging investment in new uranium
mines.
(e) Impact on the community
Ad valorem royalty:
4.19 An ad valorem royalty would be more likely to provide a more predictable
royalty revenue flow for the Australian Government and thus to the NT Government
and to the ABA from project commencement to close down. However, because an
ad valorem takes no account of costs and would be payable from project
commencement, it could deter investment, particularly in respect of marginal
projects, (which would result in no royalty being payable if no project eventuates) and
also result in premature mine closure as the resource is depleted and unit costs
increase. Thus the mine life is likely to be shorter under an ad valorem royalty all
things being equal with consequences for lower output, employment and flow-on
effects over the life of a mine compared with a profit-based royalty.
Profit-based royalty:
4.20 Profit-based royalties take account of revenue and costs and are thus more
economically efficient and less distorting of investment decisions compared with ad
valorem royalties. Under a profit-based royalty regime, no profit may be earned, and
thus no royalty may be payable, in the initial years of a mining operation and towards
close down as resource is depleted and mining costs per unit increase. Profit based
royalties are therefore more encouraging of investment in resource development,
which is consistent with Government economic policies, and enable windfall gains
from strong market conditions to be shared between investors, the Government and
Aboriginal communities affected by the mining operations through payments from the
ABA.
Hybrid royalty:
4.21 Hybrid royalties trade off economic efficiency for a measure of revenue
predictability while maintaining the administrative complexity of a profit-based royalty.
The modelling indicated that the hybrid royalty was likely to have a similar outcome
as under a profit-based arrangement.
20
General Comment
4.22 The Land Councils support an ad valorem royalty because they consider the
royalty equivalents paid into the ABA would be more predictable and thus income
payments from the ABA to traditional owners would be more stable. Despite mines
being more likely to be economic under a profit-based royalty, the Land Councils in
general do not support a profit-based royalty because little or no royalty may be
payable at some stages during the life of a mine which would adversely affect the
level of royalty equivalent payments into the ABA and income payments from the
ABA to traditional owners. This position has been maintained despite the fact that
64% of royalty equivalent payments into the ABA are already derived from non-
uranium mines which are subject to the profit-based royalty so traditional owners are
already managing the royalty fluctuations. The Central Land Council, however, has
indicated that it could accept a profit-based royalty providing that traditional owner
negotiated royalties would not be deductible in calculating statutory royalties.
4.23 An analysis was undertaken of the effect on royalty equivalent payments into
the ABA if two new Ranger-size uranium mines had been operating under a profit-
based royalty over the period 2002 to 2006. Total royalty equivalent payments into
the ABA from mineral and petroleum projects on Aboriginal land in the NT subject to
the both ad valorem and the NT's profit-based royalty in 2006 would have increased
from $62.8 million to $76.8 million. The proportion of royalties derived from all
projects subject to a profit-based royalty would have increased from about 64% to
70% while the proportion derived from non-uranium minerals would have declined
from 64% to 52%. The proportion is influenced by the large portion of the royalty
equivalents which are derived from non-uranium minerals.
4.24 Under the Aboriginal Land Rights (Northern Territory) Act 1976, mining
companies and Land Councils are required to reach agreements for exploration and
mining on Aboriginal land. These agreements contain a negotiated royalty (generally
around 2% ad valorem) which is payable to the traditional owners. The negotiated
royalty would provide for income payments to the traditional owner during period
when the mine was making accounting losses and therefore paying no statutory
profit-based royalty.
Summary of Impacts
Implementing the NT's profit-based royalty regime for new uranium mines with royalty
administration undertaken by the NT Treasury on behalf of the Australian
Government is the approach favoured of the majority of stakeholders.
Implementation of the NT royalty regime:
will provide investors in uranium exploration and mining with the regulatory
certainty of a royalty regime which is economically efficient and encouraging of
investment;
will ensure the community (ABA, traditional owners and NT Government)
receives a fair share of the value from the development of uranium resources;
will bring uranium under an royalty regime which has been operating for 25 years
and with which the industry is familiar;
is consistent with the Australian Government's approach to royalties (eg, the
Petroleum Resource Rent Tax which applies to offshore petroleum projects in
Commonwealth waters is a profit-based resource tax) and the Ministerial Council
21
on Mineral and Petroleum Resources principles for ideal resource taxation
arrangements of economic efficiency, equity, administrative simplicity and
consistency;
will ensure uranium is treated the same for royalty purposes as other minerals in
the NT; and
will protect the interests of traditional owners and Land Councils by not allowing
deductibility of traditional owner negotiated payments in calculating the statutory
royalty.
5. A consultation statement
A NT Uranium Royalty Sub-group (URS) was formed under the Regulation Working
Group of the UIF's Implementation Group to consider the options for development of
a royalty regime for new uranium mines in the NT. The URS consisted of
representatives of the key stakeholders:
Australian Government agencies (Prime Minister and Cabinet Industry, Treasury,
Finance and Administration, Industry Tourism and Resources, and Families,
Community Services and Indigenous Affairs);
NT Treasury;
NT mining industry (NT Minerals Council, Cameco and Energy Resources of
Australia); and
Aboriginal Land Councils (the Central Land Council and Northern Land Council).
The URS was chaired by the former Department of Industry, Tourism and
Resources.
The first meeting of the URS (February 2006) agreed to a set of principles as the
basis for consideration of a royalty regime to apply to new uranium mines in the NT.
These principles are set out in Appendix 1.
To assist the URS with its deliberations, a full and development cycle economic
modelling exercise of a uranium mining project scenario was conducted under ad
valorem, profit-based, and hybrid royalty regimes, for Aboriginal and non-Aboriginal
land, as described above. A summary of the economic modelling is at Appendix 2
and details of the modelling methodology are provided in Appendices 3 and 4.
In October 2006, a discussion paper circulated to URS members included the
outcome of the modelling exercise and asked members to outline their positions on
specific issues identified as relevant to the development of a new uranium royalty
regime, namely:
Options for royalty applying to Aboriginal land and to other NT areas;
Deductibility of traditional owners' negotiated royalty under any new uranium
royalty regime'
Methods to allocate royalties between uranium and non-uranium products in poly-
metallic mines; and
Options for the administration of uranium royalties.
Submissions were received on the above issues from stakeholder representatives
participating in the URS and these issues were discussed at a meeting in Darwin on
14 March 2007. A report for the UIF Implementation Group has been developed and
refined through subsequent teleconferences and e-mail communications and is to be
considered by the UIF Implementation Group on 23 August 2007.
22
All stakeholders are in agreement that:
a single statutory royalty regime should apply to new uranium mines in the whole
of the NT regardless of land ownership;
a hybrid royalty regime not be introduced; and
the NT should administer uranium royalty collections and receive a grant in lieu
consistent with the 1978 MOU on financial arrangements between the
Commonwealth and the NT.
Most stakeholders (except the Land Councils) support applying the NT's profit-based
royalty regime to new uranium mines.
Most stakeholders support there being no deductibility for traditional owner
negotiated royalties in calculating the statutory royalty payable.
The NT's profit-based royalty regime provides a balance between the interests of the
Government, industry and Land Councils, in that:
Government would be implementing a profit-based regime: which is economically
efficient in terms of encouraging investment; is consistent with the royalty regime
which has applied in the NT for 25 years and thus its administration is well
understood by NT Treasury and the industry; and would treat uranium the same
as other minerals in the NT for royalty purposes;
the industry would get a royalty regime which is more economically efficient in
terms of encouraging investment and is consistent with the royalty regime which
has applied in the NT for 25 years, enabling uranium to be treated the same for
royalty purposes as non-uranium minerals, but the industry would not get
deductibility for the traditional owner negotiated royalty in calculating the statutory
royalty;
Land Councils interests in ensuring that royalty equivalent payments are not
eroded through deductibility of the traditional owner negotiated royalty would be
met, and as 64% of royalty equivalents are already derived from mining
operations subject to the NT's profit-based royalty, the extension of the NT's
profit-based royalty regime to new uranium mines should be a manageable issue.
6. A recommendation statement
The features of the NT's profit-based royalty regime and an ad valorem regime are
considered against the URS principles for consideration of a new royalty regime for
uranium which are set out in Appendix 1.
The comparison between the two royalty regimes is set out in the table below and
indicates that the NT's profit-based royalty regime meets six of the seven principles
whereas an ad valorem regime meets only three of them.
23
Comparison of the Northern Territory Royalty Regime with Principles
for Consideration of a New Royalty for Uranium
Principles Compari son of NT Royalty Compari son of Ad Valorem
Regime with the Principles Regime with the Principles
1. Profit -bas ed NT The NT's profit-based royalty is An ad valorem regime would not
regime to be consistent with the Australian be consistent with this principle,
used as a Government's approach to nor the Australian or NT
benchmark for royalties (eg, PRRT) and the Governments' approaches to
designing new MCMPR's principles of economic royalties.
resource charge efficiency, equity, (see 2)
arrangements. administrative simplicity (see 5), An ad valorem royalty regime for
consistency (NT is the only uranium would be a departure
Australian jurisdictions with a from the consistency of a single
profit-based royalty regime royalty regime applying to all new
applying to all minerals) and mines in the NT and would treat
international competitiveness (to uranium differently for royalty
the extent which can be purposes from ot her minerals in
determined). the NT.
2. Protection of Yes. The ALRA requires the Yes. The ALRA requires the
established Australian Government to pay Australian Government to pay
rights of into the ABA the equivalent of all into the ABA the equivalent of all
Aboriginal royalties from minerals mined on royalties from minerals mined on
interests to a ALRA land and for the Aboriginal ALRA land and for the Aboriginal
share of uranium people in areas affected by the people in areas affected by the
related resource mine to receive 30% of those mine to receive 30% of those
charge receipts. royalties. royalties.
In addition traditional owners and In addition traditional owners and
mining companies usually mining companies usually
negotiate privat e payment negotiate privat e payment
arrangements. arrangements.
3. Meet No. The Commonwealt h's No. The Commonwealt h's
Commonwealth financial obligations to the NT are financial obligations to the NT are
uranium related to provide a grant in lieu of to provide a grant in lieu of
administrative royalty. Commonwealth's royalty. Commonwealth's
costs including financial obligations to the NT financial obligations to the NT
obligation to NT cannot be met from uranium cannot be met from uranium
from uranium royalty receipts from mines on royalty receipts from mines on
resource charge ALRA land as this would be ALRA land as this would be
receipts. inconsistent with the ALRA. The inconsistent with the ALRA. The
ALRA requires all royalties from ALRA requires all royalties from
mining on ALRA land to be paid mining on ALRA land to be paid
into the ABA. into the ABA. .
4. Seek The statutory roy alty would apply The statutory roy alty would apply
comparable equally to ALRA and non-ALRA equally to ALRA and non-ALRA
resource charge land. Privately negotiated mining land. Privately negotiated mining
outcomes payments bet ween traditional payments bet ween traditional
between uranium owner and mining companies owner and mining companies
extraction on under ALRA agreements would under ALRA agreements would
non-Aboriginal be additional to statutory be additional to statutory
and Aboriginal royalties. This is consistent royalties. This is consistent
land. treatment compared with other treatment compared with other
non-uranium minerals produced non-uranium minerals produced
from ALRA land. from ALRA land.
24
Principles Compari son of NT Royalty Compari son of Ad Valorem
Regime with the Principles Regime with the Principles
5. Seek a uranium Profit -bas ed roy alties are more Ad valorem royalties are
resource charge economic ally efficient and neutral generally more administratively
which is in terms of investment decisions simple. However, they:
administratively compared with ad valorem are less economically efficient
simple and royalties. and can distort investment
economic ally decisions;
efficient for all The NT royalty regime has been can discourage development
uranium in operation for 25 years and NT of marginal prospects;
discovered in the officials and industry and familiar can result in premat ure mine
NT. with its operation. closure before the total
resource has been extracted.
6. Recognise costs The NT's profit-based royalty No. Ad valorem royalties are
related to takes account of operating costs, generally levied as a percentage
uranium capital recognition deduction on of revenue without regard to
extraction as eligible capital assets, and costs of extraction.
eligible eligible exploration expenditure
deductions. in calculating the royalty payable.
7. Proposed Adoption of the NT's mineral An ad valorem royalty regime
resource charge royalty regime for new uranium could be drafted with minimal
arrangements mines would minimise compliance requirements, but
will be drafted compliance requirements. It is would res ult in uranium be
with a view to an existing regime and NT treated differently for royalty
minimising officials and industry and familiar purposes from ot her non-uranium
compliance with its operation. minerals in the NT.
costs.
The recommendations agreed by the URS are as follows, noting that the Land
Councils do not support recommendation (a) and that the industry does not support
recommendation (b):
(a) the NT's profit-based mineral royalty regime as set out in the MRA should be
adopted as the single statutory royalty regime to apply to new uranium mines
in the whole of the NT regardless of land ownership and implemented through
the Mirror Taxes legislative approach;
(b) negotiated royalties under agreements between mining companies and Land
Councils on behalf of the traditional owners would be an additional
component above any statutory uranium royalty paid to Government and such
negotiated royalties would not be deductible in calculating the statutory
uranium royalty;
(c) the NT and the Australian Governments should determine bilaterally the
method of apportioning royalties from a poly-metallic mine (the method would
not affect the overall level of royalties payable by mining companies, nor
royalty equivalents payable to the Aboriginal Benefits Association);
(d) administration of royalty collection and payment of royalty equivalents to the
Aboriginal Benefits Account in respect of new uranium mines should operate
as follows:
in accordance with the 1978 MOU between the Australian and NT
Governments on financial arrangements, the grant to the NT of an amount
25
in lieu of uranium royalties from new uranium mines should be at the
existing NT royalty rate of 18% of profits;
the NT Treasury should administer the collection of royalties from new
uranium mines on behalf of the Australian Government and retain those
royalties;
the Australian Government should ensure the necessary appropriation
requirements are in place through its annual Budget process so that the
NT can legally retain the uranium royalty receipts;
the NT Treasury will advise the Australian Government of the amounts of
royalty collected from new uranium mines on Aboriginal land; and
the Australian Government will make royalty equivalent payments into the
Aboriginal Benefits Account in respect of royalties derived from new
uranium projects on Aboriginal land.
7. A strategy to implement and review the preferred option.
In order to apply an ad valorem or profit-based royalty regime to uranium production
from new mines in the NT, it would be necessary for Commonwealth legislation to be
enacted. The Australian Government Solicitor has advised that there are two
implementation options if the Government decided to apply the NT's profit-based
royalty as set out in the Mineral Royalty Act 1982 (NT) to the production of uranium
minerals. These are outlined below.
Commonwealth legislation could be enacted which imposed the royalty and picked
up and applied all the provisions of the NT MRA to the Commonwealth royalty as if
that royalty were a royalty for the purposes of the NT MRA. Alternatively, the
approach adopted by the Commonwealth Places (Mirror Taxes) Act 1988 (Mirror
Taxes Act) could be used. Under the Mirror Taxes Act, various State Acts imposing
State taxes were picked up and applied, together with the State legislation relevant to
the administration of those laws, as Commonwealth taxes.
The Mirror Taxes Act approach has the advantage of ensuring that the legislative
provisions governing the imposition and administration of the uranium levy will be the
same as those governing the imposition and administration of royalties under the NT
MRA irrespective of what changes might subsequently be made to the NT legislation.
Picking up and applying NT laws as in force from time to time means that the
Australian Parliament loses some measure of control over the content of the
Commonwealth law imposing the royalty, but this issue could be addressed to some
extent by requiring NT authorities to consult with the Commonwealth before any
changes are made to the relevant NT legislation.
The preference is to use the Mirror Taxes Act approach and confer powers on NT
officials so that the NT Treasury could administer the collection of uranium royalties
on behalf of the Australian Government and ensure compliance through the
provisions of the profit-based royalty arrangements. This would enable the uranium
royalty to automatically maintain consistency with the NT mineral royalty regime and
thus would avoid any need to review whether the Commonwealth's legislation has
got out of kilter with the Mineral Royalty Act 1982 (NT).
26
APPENDIX 1
PRINCIPLES FOR CONSIDERATION OF A NEW ROYALTY REGIME FOR
URANIUM IN THE NORTHERN TERRITORY
1. Profit-based NT regime to be used as a benchmark for designing new
resource charge arrangements.
2. Protection of established rights of Aboriginal interests to a share of uranium
related resource charge receipts.
3. Meet Commonwealth uranium related administrative costs including
obligation to NT from uranium resource charge receipts.
4. Seek comparable resource charge outcomes between uranium extraction on
non-Aboriginal and Aboriginal land.
5. Seek a uranium resource charge which is administratively simple and
economically efficient for all uranium discovered in the NT.
6. Recognise costs related to uranium extraction as eligible deductions.
7. Proposed resource charge arrangements will be drafted with a view to
minimising compliance costs.
27
APPENDIX 2
SUMMARY OF ECONOMIC MODELLING OUTCOMES
Economic modelling was conducted to assist in the overall assessment of the costs,
benefits and implications of moving towards a more consistent uranium royalty
regime in the NT. An Excel model was used to investigate the fiscal implications of
ad valorem, profit and hybrid uranium royalty regimes. In summary, the modelled
royalty regimes are:
a 5.5 per cent ad valorem royalty;
a 18 per cent profit royalty based on the NT's Mineral Royalty Act 1982; and
a hybrid royalty regime consisting of a 1 per cent ad valorem and a 1 per cent
profit based royalty.
The modelled uranium mine represented a medium to large "Ranger" style
development assessed under both marginal economic (base case) and profitable
(high price) conditions. Table 1 summarises the key statistics of the uranium project
and Table 2 summarises the financial outcomes of the project. These financial
outcomes are indicative and not necessarily typical of what will be generated from a
future uranium mine in the NT. What is useful for the analysis of the different royalty
regimes are the relative differences in the outcomes for stakeholders under the
different economic scenarios.
Table 1: Key statistics of uranium project.
Uranium reserve Mine life Operating cost Uranium price
Base case High Price
84,000 tonnes 25 years AUS$25/lb
US$30/lb US$36/lb
Table 2: Before tax full cycle financi al outcomes under the ad val orem, profit and hybri d royalty
regimes on ALRA l and.
Ad valorem royalty Profit royalty ($m) Hybrid royalty ($m )
($m)
Base ca se High Price Base High Price Base ca se High Price
case
Project cash flow nominal $1,140 $2,600 $1,210 $2,450 $1,340 $2,820
Project cash flow NPV -$19 $136 -$12 $120 $2 $160
15%
Revenue NPV 15% $820 $984 $820 $984 $820 $984
Traditional owners' $135 $162 $135 $162 $135 $162
negotiated payment
nominal
Traditional owners $14 $17 $14 $17 $14 $17
negotiated payment NPV
15%
Royalty cost nominal $289 $347 $213 $490 $88 $119
Royalty cost NPV 15% $31 $37 $24 $53 $9 $13
Royalty revenue NPV $117 $141 $94 $207 $36 $49
5.32%*
* Royalty revenue represents the value of the royalty from a government perspective. It is the
investors royalty cost at a discount rate of 5.32 per cent.
28
The modelling showed that:
under the ad valorem, profit and hybrid royalty regimes the base case
assumptions agreed by the URS generated net present values (NPV) that were
negative or marginal for the full cycle economic assessment;
if a profit royalty is applied to non-ALRA land while the current ad valorem royalty
remained on ALRA land there would be a tax driven incentive to focus exploration
effort on non-ALRA land;
under the development cycle all royalty regimes generated a positive NPV;
Under base case assumptions less royalty revenue is collected under the profit
and hybrid royalty regimes when compared to the ad valorem royalty;
The profit based royalty provided greater returns to the community under more
positive economic conditions;
From an investor perspective the hybrid and profit based royalty regimes are
more attractive than the ad valorem royalty regime under marginal economic
conditions;
Under the base case assumptions, uranium projects under a profit based royalty
or a hybrid royalty required a significantly smaller increase in prices or a reduction
in costs in order for the project to breakeven when compared to projects under an
ad valorem royalty; and
Ad valorem royalties can act as a disincentive to invest in mine expansion or may
lead to premature mine closure under adverse economic conditions. This risk is
minimised under the profit based royalty regime because the royalty payable is
reduced in line with either an increase in capital expenditure or adverse economic
conditions.
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APPENDIX 3
MODELLING METHODOLOGY
Economic modelling was conducted to assist in the overall assessment of the costs,
benefits and implications of moving towards a more consistent uranium royalty
regime in the NT. An Excel model was used to investigate the fiscal implications of
ad valorem, profit and hybrid uranium royalty regimes. In summary, the modelled
royalty regimes are:
a 5.5 per cent ad valorem royalty;
a 18 per cent profit royalty based on the NT's Mineral Royalty Act 1982; and
a hybrid royalty regime consisting of a 1 per cent ad valorem and a 1 per cent
profit based royalty.
With the assistance of the URS a number of modelling assumptions were agreed.
These modelling assumptions are detailed in Appendix B.
A uranium project was assessed by investigating its full and developmental cycle
economics. Full cycle analysis takes into account exploration and feasibility study
expenditure and therefore is an assessment of the project from a pre-exploration
commitment perspective. The development cycle analysis assesses the project from
a pre-final investment decision perspective. That is exploration and feasibility study
expenditures are considered sunk costs.
Before tax economic analysis (excluding company tax) compared the impact of the
different royalty regimes on the project's profitability and community return. The
before tax economic analysis has been undertaken using a discount rate of 15 per
cent.
After tax economic analysis (including company tax) was used to assess the impact
of making payments negotiated with Aboriginal traditional owners deductible for the
purpose of calculating the profit royalty payable. The after tax economic analysis has
been undertaken using a discount rate of 10 per cent. It is acknowledged that the
after tax economics of a uranium project will be influenced by the unique tax position
of the taxpayer.
The sensitivity analysis involved assessing the impact of changing price and
operating costs. The models were run with a base case uranium price of US$30/lb
and high uranium price of US$36/lb, 20% above the base case. Similarly operating
costs were run at base case cost of AUS$25/lb and a high operating cost of
US$27.5/lb, 10% above the base case.
The Northern Land Council (NLC) provided an alternative production profile that
closely reflects the historic production profile of the Ranger mine. This production
profile was assessed as an alternative to the base case and was found not to have a
significant impact on the outcome.
Aboriginal communities have previously negotiated a royalty-type payment to
compensate them for the loss or damage likely to be suffered by Aboriginal
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communities affected by the proposed grant of the mining interest. A 1.75 per cent
ad valorem traditional owners' access charge has been modelled to reflect this
compensation payment for mines on Aboriginal land (ALRA land). The economic
performance of uranium mines on ALRA and non-ALRA land are compared.
A paper assessing options for apportioning costs between uranium and other
commodities for the purpose of determining a uranium royalty in a poly-metallic mine
was also prepared by Geoscience Australia.
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APPENDIX 4
BASE CASE MODELLING ASSUMPTIONS
1. A uranium mine with a producing life of 20 years from 2008 to 2028 (data in real
2006 $Am).
2. Pre development exploration costs of $5m pa for three years from 1999 to 2001.
No ongoing exploration expenditure.
3. Feasibility studies from 2002 to 2005 at $12.5 million pa.
Feasibility expenditure is treated as capital in nature for the purpose of
the profit based royalty.
4. Construction in 2006 and 2007 at $350 million pa. The proportion attributed to
operational costs is assumed to be 12% of construction costs.
5. Annual production from 2008 to 2014 of 6000 tpa and 3000tpa U3 08 thereafter to
closure (profile based on ERA experience of production history).
6. Operating costs of AUS$25 per lb U3 08 for the life of the mine.
7. CAPEX over the working life of the mine of $30 million pa to 2024 then
$10 million pa from 2025 to 2027.
These are assumed to be 10 years for Capital Recognition Deduction
purposes.
Half of annual capital spent in first year is eligible for Capital Recognition
Deduction.
No capital sales during the life of the mine.
8. Price of US$30 per lb U3 O8 and an exchange rate of US0.72 per $AUS
9. Closure costs = $220m commencing 2028. $120m spent over first 6 years of
closure ($20m pa) and the rest over the following 25 years.
10. Traditional owners' negotiated payment: 1.75% ad valorem royalty equivalent
11. Discount rate of 15% (pre corporate tax). Government discount rate of 5.32%.
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