BHP Warns on Iron Ore Royalties as Australian Tax Bill Increases

  • Western Australia’s Nationals leader argued for iron ore hike
  • Australia’s tax office seeking A$1 billion in pricing dispute

Iron ore exporters in Brazil may benefit under a proposal to raise iron-ore royalty charges in Western Australia, a move that could jeopardize investments in the state, according to BHP Billiton Ltd., which is also locked in dispute with federal tax authorities.

Higher royalty, or tax costs, would mean producers face more difficult decisions on approving new mines, opening a path for competitors in Brazil to increase market share, Chief Financial Officer Peter Beaven told reporters in Melbourne. The company is also continuing to negotiate with the Australian Tax Office over a higher A$1.02 billion ($770 million) bill for pricing of sales of commodities, including iron ore, to its Singapore marketing unit, he said.

Raising royalties costs “would most definitely not be good for Australia,” Beaven said. “Those tons would be replaced in the market, but of course they would be replaced from Brazil and other competitors.” He cited Vale SA’s S11D expansion project, with planned capacity to produce 90 million metric tons a year.

Boost Revenues

Western Australia’s Nationals party leader Brendon Grylls has set out a proposal to raise state charges on BHP and Rio Tinto Group’s iron ore operations to A$5 a ton from 25 Australian cents to boost revenue, and plans to make the change a focus of his 2017 state election campaign. The plan from the Nationals, a junior partner in the state’s ruling coalition, has support among about 45 percent of voters, according to a survey last week of 1,700 people published by The West Australian newspaper.

The ATO has issued BHP with an assessment of additional charges liable on sales of commodities from Australia from fiscal 2003-to-2013 to its Singapore marketing unit, the company said Wednesday in a report. The marketing unit re-sells both BHP and third party material to customers at higher prices, and BHP disputes the ruling, it said.

“If this goes to court then so be it, we would just like to get it resolved,” BHP’s Global Head of Tax Jane Michie told reporters Tuesday in Melbourne. “We regard it as perfectly normal to have disputes like these with tax authorities.”

BHP paid $3.74 billion in tax, royalties and other payments to global governments in the year to June 30, including $853 million to Western Australia, the producer said in its report.

Before it's here, it's on the Bloomberg Terminal.