New tax a threat to Miitel viability: Mincor

MINCOR Resources is set to restart production from its Miitel nickel mine, but has warned that the federal government’s new resource super-tax threatens the operation’s future viability.

The nickel producer said today that it plans to rapidly move to reopen the mine, in Kambalda in Western Australia, with mine restart costs tipped to be less than $A1 million.
Modelling carried out by Mincor, with the help of external tax advisers, showed it was in the company’s best interests to restart production immediately as Miitel would benefit from a two-year window before the new resource super-tax was introduced in mid-2012.
However, Mincor also warned that the new tax would have a significant impact on the future viability of the Miitel operations.
According to the modelling, if the mine was restarted in a post-2012 tax environment, the impact of the proposed new tax would see the total tax rate for the project increase considerably above the current rate of 41%.
“In essence, the modelling shows that if the mine was developed as a completely new project under the new tax regime, and without the benefit of past expenditures, the total tax rate would be a deeply unattractive 57 per cent,” Mincor said.
“If the benefit of past expenditures were included, this total tax rate would reduce to a still unattractive 55 per cent.”
Mincor also warned that an extension beyond the initial four-year mine life at Miitel could be in jeopardy as the project would then be exposed to the new tax.
“As with all of Mincor’s mines, the company has high expectations that the initial four-year mine life will be substantially extended through exploration, and it is the viability of these possible future extensions that are placed in doubt by the new tax,” the company said.
“Such extensions would attract tax of approximately 55 per cent.”
The company also highlighted the way in which the tax rate was adjusted under changing commodity price assumptions.
“The model shows that under the proposed new system the tax rate of around 55-57 per cent remains unchanged at high, low and middling nickel price assumptions,” the company said.
“Under current tax legislation, the tax rate rises under low price assumptions and declines under high price assumptions.
“This means that, under the resource super-tax, the federal government will effectively subsidise marginal or sub-economic mines during periods of lower commodity prices.
“This has profound implications for economic efficiency, resource investment, and Australia’s status as a market economy.”
The tax modelling was based on a life-of-mine nickel price assumption of $US9 per pound and an exchange rate of US90c.
Mincor has begun site works at Miitel with initial production set to resume as early as next month and ramp-up to full production tipped to begin from July 2010.
Production is forecast at 4500-5500t of nickel-in-ore per year during the initial four-year production schedule at life-of-mine cash costs of around $5.50-6.00/lb of payable nickel.
The project’s restart ore reserve, including the recent N29 discovery, is 616,000t at 2l.7% nickel for 16,400t of contained nickel.
The mine was placed on care and maintenance in December 2008 in response to the global financial crisis.
Shares in Mincor have dipped 1c to $1.63 in afternoon trade.

 

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