Labor plans tax credits to help nickel miners
Phillip Coorey, Brad Thompson and Hans van Leeuwen
Feb 18, 2024 – 10.30pm
The Albanese government is fast-tracking a system of production tax credits to try
to protect the ailing nickel mining industry, and is prepared to extend the credits to
lithium miners should the price of that critical mineral also continue to fall.
As Anthony Albanese arrived in Perth on Sunday for a cabinet meeting on Monday,
sources said the development of tax credits, which was initially resisted by
Treasury, was being “accelerated” via the budget process amid warnings from BHP
[https://www.copyright link/link/follow-20180101-p5f5qu] and others that they may have to cease
operations with the loss of thousands of jobs.
Prime Minister Anthony Albanese (left) and BHP chief executive Mike Henry (second from left) at BHP’s
Kwinana nickel refinery in October 2022.
Mr Albanese said West Australian Premier Roger Cook would be invited to the
cabinet meeting for the discussion on nickel, and he was confident the government
could nurse the industry through what he said was a time-limited challenge.
“We are looking towards smart, targeted, time-limited support. This is a short-term
issue for what is in the long term, a very critical industry for Australia,” he told
reporters in Perth.
“Nickel will be a critical mineral going forward. It’s critical for batteries and for
other sources as the global economy shifts, as we are seeing, to clean energy.”
The Albanese government on Friday put nickel on the government’s official critical
minerals list to bolster WA’s nickel miners [https://www.copyright link/link/follow-20180101-
p5f54r], which are being smashed by a glut of the critical battery metal
[https://www.copyright link/link/follow-20180101-p5f44q] from Indonesia. The WA government
announced a 50 per cent royalty discount over 18 months.
On the same day, Mr Albanese flagged plans for a multibillion-dollar scheme to try
to rival the United States’ Inflation Reduction Act [https://www.copyright link/link/follow20180101-p5eyk2], which is luring green technology investment with hundreds of
billions of dollars in subsidies and other measures.
‘Quality and impact of our policies’
Mr Albanese said then that Australia could not go “dollar-for-dollar in our
spending, but we can go toe-to-toe on the quality and impact of our policies”.
A government source said this was consistent with the plans to give BHP and other
nickel producers tax credits.
“We don’t have the hundreds of billions that the US can throw at this, it’s what
other levers we can pull.”
Moreover, it would be politically difficult to offer direct subsidies or handouts to a
corporate giant such as BHP.
At the same time, however, BHP was making a loss on nickel and could not be
asked to keep producing it while offsetting it with profits from coal and other
operations.
That would be akin to “socialism”, the source said.
On Thursday, BHP warned it was considering shutting down its entire WA nickel
division, which employs about 3000 people.
With the lithium price also falling due to cheap, overseas rivals, the source said the
credits would be extended to lithium miners if need be.
“The cost of funding this transition is going to be extraordinary.”
While Mr Albanese will hold discussions on the matter while in WA, no policy
announcements are planned.
Industry pushes 10pc credit scheme
While the government has Treasury working up a plan, the Association of Mining
and Exploration Companies (AMEC) and other industry players have proposed a
production tax credit of at least 10 per cent to reduce costs and spur investment in
downstream processing of battery and strategically important minerals.
The policy would provide a tax credit worth 10 per cent of the cost of production of
value-added critical minerals, including labour, utilities, chemical inputs and
maintenance.
For example, a producer which has $1 million in eligible costs would generate a tax
credit of $100,000. If, at the end of the year, the company had a tax bill, it would be
reduced by $100,000. If it did not have a tax bill, the company would receive a
refund of $100,000.
This differs from tax deduction incentives like accelerated depreciation, which
reduce taxable income by a given amount.
A report commissioned by AMEC and member companies estimates it would cost
the government $340 million across the forward estimates to 2028 and a further
$1.69 billion from 2028-29 to 2034-35, while adding $2.4 billion to the size of the
Australian economy and creating more than 4200 new jobs.
The report is endorsed by Andrew Forrest’s Wyloo, lithium heavyweights Pilbara
Minerals and Mineral Resources, nickel and lithium producer IGO Limited and
others.
In Munich at the weekend, Dr Forrest said the collapse in nickel prices reflected an
unfair playing field between countries like Australia and Canada, which cleave to
high standards, and the likes of Indonesia and China.
“If we are just pricing nickel at an economic cost alone, then what will happen if we
ignore the environment and don’t apply environmental responsibility to critical
minerals,” he said.
“You’re going to find that, say, Indonesia will only deal with China because Chinesebacked companies will come straight in and they will do what is happening in
Indonesia right now, which is wiping out terrestrial ecosystems, dumping all the
waste into the ocean, wiping out marine ecosystems, wiping out the sustainability
of communities which have been there for centuries and, ‘oh, that’s all OK because
we’re just going to pay a dollar-price for it’.
Nickel industry leaders are grateful but underwhelmed with the government
response so far [https://www.copyright link/companies/mining/nickel-miners-thrown-sovereignlifeline-20240216-p5f5l3] as they try to compete with rivals in Indonesia, allowed to
operate tax-free for up to 20 years.
Miners are frustrated the federal and WA governments took so long to act, finally
spurred into action when BHP confirmed to the market that its nickel operations
and thousands of jobs were on the chopping block.
Canadian company First Quantum welcomed the royalty relief that will apply to
nickel produced at its Ravensthorpe mine in WA.
Andrew Forrest at the Munich Security Conference on Friday.
First Quantum announced in January that it would cease mining but continue to
make sales from stockpiles at Ravensthorpe under a cost-cutting strategy that
involved shedding more than 300 jobs.
The company said the mine continued to employ about 350 people, many from the
nearby coastal community of Hopetoun.
“The WA government’s support will now make an important contribution to
maintaining workforce skills at both the site and in the WA nickel sector more
broadly,” it said.
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