From The Australian:
Rio Tinto chief Jean-Sebastien Jacques says the West Australian Nationals’ plan to hike iron ore royalties is the biggest risk facing the miner, joining his BHP Billiton counterpart Andrew Mackenzie in slamming the proposed extra tariff that is aimed at just the two mining giants.
The Rio boss said the proposed extra $5-a-tonne royalty, which would strip more than $1.5 billion a year from Rio’s pre-tax earnings, would put jobs and local businesses at risk and “roll out the red carpet” for Brazil to take market share.
Mr Jacques, who took over the top job at Rio from Sam Walsh at the start of July, made the comments ahead of a Perth function on Friday night to celebrate 50 years of exports from WA’s iron ore-rich Pilbara region.
“The WA Nationals’ plan to add a new layer of iron ore taxation, on top of royalties and company tax, puts the achievements of the past 50 years at risk and jeopardises future investment in this state,” he said.
“The plan is our No 1 global risk.”
Perhaps RIO should look out its window and look at China for its real array of risks.
Still, I have sympathy for both sides here. WA deserves higher royalties but there are limits to its tax plan. The cost curve is falling and margins will be back under pressure before long. The most recent UBS cost curve shows that a $5 per tonne fee is too high (which is why I have halved it):
On my reckoning, FMG’s breakeven is a few dollars higher and RIO is $26 (and falling) hence I see a $2.50 fee as a more reasonable option. That way, WA gets its revenue lift and no market share is lost to Brazil or anywhere else. No jobs will be lost that would not have been lost anyway and there is zero sovereign risk given the dirt ain’t going anywhere.
