The Australian stock exchange has flagged it will force the suspension of the bulk of Australia’s listed gold sector should the West Australian government’s new gold royalty hike find its way through the state’s parliament.
A spokesman for the ASX told The Australian that the exchange expected the affected gold producers and developers to update the market on the impact of the royalty change once it had been passed.
It means the ASX could repeat the dramatic steps it took earlier this year, when it suspended more than a dozen resource stocks after the African nation of Tanzania introduced a sweeping overhaul of its royalty and tax regime.
The companies were forced to remain suspended from trade until they could satisfactorily explain the impact of the changes on the economics of their projects.
The ASX’s intervention followed Tanzania’s passing of legislation that increased mineral royalties by 50 per cent and introduced requirements for the government to own stakes of at least 16 per cent in mining projects.
Under the gold royalty changes announced by West Australian Treasurer Ben Wyatt earlier this month, gold royalties will jump by 50 per cent, or around $20 per ounce, to 3.75 per cent.
Asked why the ASX had not enforced trading halts for WA gold players in the same way it did for the Tanzania-exposed companies, ASX spokesman Matthew Gibbs said the key difference between the two situations was the level of certainty around the legislative changes.
“In the case of Tanzania, the changes were before parliament and about to become law,” Mr Gibbs said.
“In contrast, the change to the gold royalty is a budgetary proposal — it has not passed parliament and is not yet legislation.”
The fate of WA’s gold royalty plans rests in the hands of the Liberal opposition. The Nationals and One Nation have already vowed to oppose the royalty hike, meaning the Labor government will have to secure the Liberals’ support if the change is to make its way through parliament.
Mr Gibbs said the exchange would look for more clarity from the WA gold sector if and when the royalty increase was closer to becoming law.
“At this stage, the matter is incomplete and the impact uncertain. ASX does not expect companies to respond under those circumstances,” he said.
“We will expect companies to inform the market when there is a degree of certainty about a likely material impact.”
Including developers and explorers, there are dozens of listed gold players with exposure to WA that could be affected by any ASX move to suspend affected stocks.
Early analysis by Macquarie Research showed that the new royalty’s impact will be relatively immaterial for most of the nation’s established gold producers, with the likes of Newcrest Mining, Northern Star Resources, Evolution Mining, St Barbara and Regis Resources likely to see their earnings fall by between 1 per cent and 4 per cent if the royalty increase is introduced.
But the impact will be more severe for the state’s smaller and more marginal gold producers, with the higher impost potentially wiping out a big chunk — if not all — of the profits from the likes of Silver Lake Resources, Blackham Resources and Westgold Resources.
Newcrest’s big but higher-cost Telfer mine in WA’s Pilbara has also become a hotspot for the royalty debate. Telfer currently generates a profit margin of just $21 per ounce and Newcrest and the Chamber of Minerals and Energy of WA said at the weekend that the higher royalty would effectively wipe out the mine’s profitability and put 1500 jobs at risk.
Ramelius Resources managing director Mark Zeptner yesterday said the higher royalty would have wiped more than 10 per cent off his company’s profit last year, while CME chief executive Reg Howard-Smith said the “crippling” increase would ultimately lead to mine closures and job losses.
“The net result is a weaker West Australian gold sector, and that is bad news for all of us,” Mr Zeptner said.
“There is a very real prospect international investors will decide to ignore Western Australia for future investment and pursue gold opportunities elsewhere.”
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