TAX NEWS - JUNE 2010

Canadian goldminer decries horrible tax

It has been a bitter-sweet week for Canada's Crocodile Gold Corp. It has just declared the first commercial production from its revival of a suite of gold projects in the Northern Territory that it acquired last year from the liquidator of GBS Gold Australia, spending $120 million and creating 300 jobs in the process.

But instead of celebrating its move towards annual output of 100,000 ounces in 2010 and 200,000 ounces in 2011, the Toronto-listed group is finding it spends most of its time answering questions from its North American and European investor base about the Rudd government's proposed 40 per cent resource rent tax. Crocodile president and chief executive officer Mike Hoffman said during the week that the proposed tax was "horrible". While Crocodile remained keen on Australia's "fantastic mineral endowment" and would look to continue to expand here, the proposed tax raised serious concerns about the future flow of investment dollars into the sector.

Modelling for the Minerals Council of Australia (MCA) by accountancy firm KPMG estimated that for new middle-of-the-road gold projects in Australia, the effective tax rate would increase from the current 34.6 per cent to 54.1 per cent under the proposed tax - one under which 40 per cent of a project's profit would flow to the federal government (to the extent that a mine's profit exceeds the long-term bond rate, currently about 6 per cent). On top of that it would pay corporate tax.

The effective tax rate under the proposed regime compares with a tax rate in the mid-30s for gold mining operations in Canada, split into a corporate tax rate from 2012 of 25 per cent and provincial mining taxes that range from 10 to 17 per cent.

The head of KPMG's mining tax group in Canada, Tom King, said yesterday that if tax was the only factor, there was "no question that Canada would win hands down as the more attractive place for mining investment", assuming Australia proceeded with the proposed tax."To be fair, tax is only one aspect of making a business decision," he said. "But it is also one of the fundamentals."

Mr King said Canadian mining companies and investors were astonished that a proposal such as the resource rent tax would come from Australia, given that, like Canada, it was rated "grade A" on its investment risk profile.

Mr King said that even with a retreat by government on the proposed tax, the damage to Australia's risk profile had already been done. "You have the attention of global investors who are waiting to see where the final story heads," he said.

He was in Australia for the MCA's Minerals Week conference in Canberra.