BHP, Rio Tinto agree to pay higher royalties

Rio Tinto and BHP Billiton have agreed to pay a higher iron ore royalty rate to the West Australian government, opening the way for them to integrate their Pilbara operations.

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Premier Colin Barnett on Monday announced that from July 1 the two mining giants would pay 5.625 per cent in royalties on iron ore fines – the brittle and finer-grained iron ore product.

That is up from a 3.75 per cent concession rate the companies have enjoyed since the 1960s, partly in recognition of their contribution to building roads, ports, railways and townships in mining regions.

Iron ore fines were also previously not highly valued but have since become a key iron ore commodity.

The agreement, signed off by the WA cabinet on Monday, also involves the companies paying the government a combined one-off amount of $350 million, which will be earmarked for a new children’s hospital due to open in 2015, Mr Barnett said.

“This has been an exhausting, a very exacting, but a very good negotiation between the two largest mining companies in the world and the state of Western Australia.

“It is a good result and it is a fair result.

“It gives the companies what they have sought and gives a very substantial financial return to the people of Western Australia who are the owners of these Pilbara iron ore resources,” the premier said.

“Had we not done what has been done today, Western Australia would have been essentially selling its iron ore for decades to come at half price. That’s not acceptable.”

Mr Barnett said the agreements, reached after 12 months of often tough discussions, simply brought Rio Tinto and BHP into line with what other iron ore miners in WA were already paying.

He said the one-off payment of $350 million was partly in recognition of the WA government’s agreements that the companies could integrate their Pilbara operations, the “jewel in their corporate crown”.

That would allow them to share ports and railways and blend their iron ore, keeping them competitive in international markets, the premier said.

The agreement will bring in an additional $340 million to the WA government for the 2010-11 financial year, he said.

Mr Barnett said he expected the extra money the two companies paid to the WA government would be rebated to them under the federal government’s new resource super-profits tax (RSPT).

“However, I make it clear, the decision on royalties is independent of whatever the federal government might be proposing.

“This is not a higher rate of royalty, it is removing a concession the two companies had.”

Mr Barnett has been a vocal critic of the RSPT.