ATLAS Iron boss David Flanagan, fresh from his $828m bid for Giralia Resources, has attacked Labor plans to cap state mining royalties.
He sees the tax proposal as a blatant federal takeover.
The Gillard government has suggested penalties would be imposed on states if they breached proposed limits to royalties, which mining companies could credit against payments under the mineral resources rent tax.
"It's essentially the federal government seizing the royalties," Mr Flanagan said.
"Now as a West Australian, I'm pretty concerned about that, and I'm absolutely 100 per cent supportive of what (Premier) Colin Barnett's doing. And I think the feds would be well served by just having a think about that."
Mr Barnett has insisted he would not allow the commonwealth to impose restrictions on state royalties, and said it did not have the power to do so. The Queensland and Victorian governments have also reserved the right to set mining royalty rates.
The states have threatened to fight the commonwealth on the tax through the Council of Australian Governments.
Mr Flanagan said the ability of states to negotiate state royalties with companies was key to ensuring major projects were developed. A profits-based tax was liable to wild swings, whereas state royalties were more reliable.
"It's modest enough and we know it's enough that royalties do not impact the viability of projects," he said.
The Atlas Iron managing director received support from fellow West Australian Mike Young, chief of BC Iron, who said he was stunned at the federal government's move.
"I thought I couldn't be surprised by their arrogance any more, but now I am," Mr Young said. "The idea the government wants to further erode state powers is breathtaking.
"It's just another indication of how desperate they are to fill a hole in the budget."
Mr Barnett said yesterday state royalties were the price at which state governments sold the minerals in the ground.
"If the commonwealth wants to introduce a new tax, there may be a constitutional doubt about that, but if they want to do it then they have to defend their tax on its grounds, not by attacking state royalties," Mr Barnett told Sky News yesterday.
The Premier said he had no plans to lift mining royalties.
Smaller miners were disappointed that the policy transition group for the proposed mining tax -- led by Resources Minister Martin Ferguson and former BHP chairman Don Argus -- argued there was "no compelling case" for financial incentives to promote mining exploration.
Mr Flanagan said governments needed to consider the long-term view of the minerals sector.
"People aren't realising that in five to 10 years' time you've got to keep encouraging people going out into the greenfields, because they are in Canada and a lot of the money's going out over there," he said. "The government's got to take this on board and do what's good for the country."
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