MRRT Will Cost Australian Coal Producers An Extra A$7.4bn Over The First Five Years

SINGAPORE, 28th July 2010 - Wood Mackenzie's Coal Supply Service report entitled 'The impact of Mineral Resource Rent Tax (MRRT) on coal' estimates coal producers will pay an additional A$7.4 billion (bn) in government take as a result of the proposed new tax over the first five years. The analysis is based on a continuation of strong coal prices.
Gero Farruggio, Head of Coal Supply Research says, "As MRRT is a profit based tax, government revenue will become more sensitive to price fluctuations. With a continuation of current strong coal prices, we expect total government take to increase by over A$7.4 bn, or eight percent, over the first five years of MRRT, compared to the current regime. The top five producers will account for 55 percent of this additional tax over the period - those with high margins being most affected"
In addition to fiscal uncertainty, Australian miners are battling long-term trends of strong cost inflation and decreasing productivity. Farruggio expands, "This year, we estimate Australia - the world's largest coal exporter - will pay A$9.3 bn in tax and royalty payments from coal production, which compares to A$5.9 bn from Indonesia, the second largest exporter. Traditionally Australia is viewed as a low cost exporter, but in our 2010 global thermal coal export cash cost rankings it is well down the table in 6th place. Indonesia dominates the ranking tables with the largest thermal coal production and lowest average cash cost – in contrast to Australia, it has moved to reduce the level of government take from coal production."
A return to the low prices of just a few years ago will see no additional government revenue flowing from MRRT, with some companies benefiting from a reduction in the corporate tax rate from 30 percent to 29 percent. There are various issues concerning the MRRT that still require clarification including the definition of market value of existing assets.
Wood Mackenzie draws together analysis from its Coal Supply Service and Global Economic Model, costing and valuing coal mines globally. The remaining worth of Australian coal mines is estimated at A$244 bn, shared between 83 companies.

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