In a rare alignment of activists and large corporations’ mindset, Fortescue is once again sharing its beliefs in the conspirationists leanings of the Australian Government and the Super Majors. Mining

Rarely said about taxation. Well done Zambia. Financial Post

Steady progress is reported on Nautilus Minerals’ Solwara 1, its marine copper and gold mining project in the Bismark Sea (Papua New Guinea). Production should begin in late 2013. Mining

The Oppenheimers swapping diamonds for property development? Botswana Guardian (listen to an interview with Nicky Oppenheimer on Mineweb)

Forces at Play in Afghanistan’s resource extraction race. AFP

On the issue of mine waste. Infomine

As you can see from the previous post, I have dedicated a lot of attention to Australia’s Mineral Resource Rent Tax and questioned whether the tax would raise revenues to the extent suggested by the Australian Treasury. Well my answer came this week in the media from Sam Welsh, executive director of Rio Tinto.  Mr. Walsh said : “The final tax rate had been reduced from 40% to an effective 22.5% rate in the minerals resource rent tax (MRRT)” and also added that it was the best that could be done with the current Government.

Industry 1. Australian Government – 7.5%

An effective rate 22.5 compares favourably to the 28% statutory rate applicable to all corporate profits. Although I am comparing effective and statutory rates, it appears fair to conclude from the large gap in those rates that in negotiating, the industry took advantage of the Government’s unwillingness to concede defeat and got itself a tax rebate.

The preliminary exposure draft legislation is based on the recommendations of the Policy Transition Group, released in July 2010. The main components are summarized below.

• The 30 percent tax rate will be kept and will begin to be applied on July 1st, 2012;
•  Small miners with assessable profits of under A$50 million a year will be exempted from the tax;
•  Investment-wise, firms will benefit from the immediate expensing of new investments as well as a 25 per cent extraction allowance to “further shield from tax the important value add and capital that mining companies bring to mineral extraction”. Moreover, past investments will be recognized at market value and written down over a 5 year period.
• In addition to the transferability of deductions (which allows to offset the MRRT with deductions accumulated through other projects’ construction phase), unutilised tax losses will be carried forward at the government long-term bond rate plus 7 percent;
• Royalties paid at state level will be fully credited by the national government and unused credits for royalties paid will also be carried forward under the same terms as unutilized tax losses but will not be transferrable between projects or refundable;

Some sticky points remain regarding the following issues:

•  Pricing arrangements will be established to ensure only the value of minerals extracted will be taxed;
•  The tax point for underground coal mines; and
•  The valuation of multiple tenements within an area (and the decision to consider those as part of a single or multiple projects for tax purposes) will influence tax payable

The above list shows the extent to which the MRRT is full of deductions. I’m one sceptical nerd. I cannot quite figure how a lower rate and a narrower tax base allow for more revenue to be collected. The Australian Treasury stated that the difference in revenue collected is attributable to strong iron ore and coal prices and the fact that very little revenues was expected to be raised from other minerals. The coal and iron ore prices used in the revenue estimate must have been ridiculously high and the opportunities for tax planning (increasing with the complexity of the tax design) must have been ignored.

The exposure draft released by the Government is not exhaustive and is intended to provide stakeholders with an early overview of the legislation. The Government will release a second and final draft for public consultation later in 2011. If you are bold, courageous and have a lot of time on your hands; here is the exposure draft and its explanatory companion document.

Both companies have since attempted to collect funds from each other (either as damages or break fee). A settlement has been reached. Forsys will not have to pay damages to GFI although it is unknown, yet likely that it will receive compensation from the Belgian firm. This is still no happy ending for Forsys whose share price is standing below half of the value envisioned by the 2009 deal.

According to a diplomatic cable made available to Wikileaks, Industry Canada halted the transaction under the national security provisions of the Investment Canada Act in 2009. Washington and Ottawa worried that GFI would provide uranium to Iran if it secured Forsys’ mine in Namibia. GFI is alleged to have held discussions with Iranian officials regarding the supply of uranium.

Rejoice! The 18-month strike at Vale’s Voisey’s Bay operations is over. Mineweb

The Russians were right. Guinea is seeking to double its share in mining projects to bring it to at least 30 per cent. It is however taking 20% in Rio Tinto, Chinalco and the IFC’s Simandou iron ore project. Mining Weekly

Mongolia is implementing a law regulating nuclear energy. Uranium exploration will begin in 2012 and according to the Prime Minister will be the most ambitious mining venture after the Oyu Tolgoi and Tavan Tolgoi projects. Talking about the later, the bid to develop about half of this coking coal deposit recently wrapped up – 15 bidders have shown interest.

The European Union still très féroce on securing rare earths. Reuters

Bowmore Exploration (TSX-V: BOW) is undertaking exploration activities on a 700 square km area in South-East Québec as part of its St-Victor project. A portion of this area is located only 20 km away from the town of Asbestos and exploration activities have shown discoveries of higher concentrations of gold than usual in that area. Bowmore’s St-Victor project is based on a very large low-grade sediment-hosted gold deposit similarly to Kinross Paracatu mine in Brazil or even Osisko’s Canadian Malartic Project. In fact, Osisko (TSX: OSK) has a 39% stake in Bowmore Exploration. The discovery of higher gold concentration in a small area of Bowmore’s leases has even encouraged Diamond Discoveries International to expand its caribou project by acquiring more mining claims in the region. This company is exploring for gold, chromite and PGMs.

Due to its mining background, the region is prêt-à-miner as miners have access to a network of paved roads and local private trails. Local resources include abundant electricity, water supply, work force and the mining facilities in the cities of Asbestos and Thetford Mines. Neighbouring communities are reportedly favourable to those projects – a rare occurrence since most extractive projects (shale gas, uranium and asbestos) have faced strong opposition from citizens in the past year.

Other junior miners active in the region include Nevado Resources whose Nicolet copper and gold properties are located within 30 km of Thetford Mines. Amseco Exploration could also be involved in the region, yet the firm’s web site is not all that clear.

Russia’s envoy to Africa has already began the diplomatic posturing stating that while “it would be logical for Guinea to demand more favourable terms for the operations of foreign companies” Guinea’s approach should be based on “compromise and in the interests of all sides”. As the country is embarking on a “democratic path”, existing laws should be respected the envoy stressed. It remains to be seen whether Guinea’s approach is more in line with democratic processes or whether it is taking cues from Russia’s Khodorkovsky handbook. As of now, Conde’s first move as President was to purge the higher levels of the civil service and elected officials contacted for comment by Bloomberg News did not comment.

This issue is of importance to Russia as UC Rusal is sourcing 40 per cent of it bauxite from Guinea and has a plan to invest further in the country through its Dian Dian mining project. In 2006, UC Rusal was affected by a decision of the Government to cancel its purchase of the Friguia refinery through obscure court proceedings.

After abruptly dropping a decade-long business relationship with Stillwater Mining Co, the only U.S. platinum group metal (PGM) miner, as part of its bankruptcy restructuring in July 2009, General Motors has renewed its relationship with its palladium supplier. You may remember the controversy sparked by GM’s petition to a federal bankruptcy court to reject the then existing agreement with Stillwater and retain those in effect with Russian and South African suppliers.

As per the recently concluded deal, Stillwater Mining Co will provide palladium to GM for three years based on the market average price at the time of sale. The new agreement has removed the floor and ceiling prices features of the previous contracts. Stillwater Mining Co is also in discussion other automakers including Ford whose current supply agreement will soon be expiring.

As a result of the recovery in the auto sector and increased investor interest in PGMs, palladium performed well in 2010. These factors should keep supporting prices in 2011 as it is suspected that investment demand (such as demand from exchange-traded funds) could push the metal into a supply deficit in the coming year. Moreover, some analysts predict a 15% increase in gross demand. For Q1, Société Générale predicted that palladium would trade at $800 an ounce in average but warned that a correction could be expected as it perceived the metal has over bought.