Crikey Website - Who owns our great resource projects?


By Stephen Mayne, patriotic Aussie capitalist
Crikey has produced more than 100 lists over the years and favourites include dodgy honorary doctorates, unionists who sold out, cheque-book journalism and the Crikey Revised Wealth list. However, this one might just end up being the most revelatory of the lot – owners of Australia's great resource projects.

We all know the story of Australia's booming economy and budget surpluses thanks to the China-driven commodities boom. This is because the federal government scoops up company tax at the rate of 30% of profits, regardless of who owns the Australian-based asset. But how much richer would we be if the vast majority of Australia's resources projects weren't majority owned by foreign interests?I've never seen anyone accurately quantify the scale of this foreign ownership, or assess the royalties that are paid to state governments for onshore projects and the Federal government for offshore oil and gas operations. Therefore, we're going to do it and the cut-off is a current value of at least $1 billion.
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The front page lead in The Financial Times on May 26 detailed moves by Russia to renegotiate the terms with foreign investors including Exxon-Mobil and Shell in the giant Sakhalin oil and gas projects. Nationalisation has been a feature of the Putin regime and we've also seen Bolivia recently move to nationalise its energy assets and South Korea extract huge donations from exiting foreign investors who snapped up trophy assets during its 1997 financial meltdown.Elsewhere in that edition of The FT, a feature on Indonesia included the following line:
The Indonesian government is not alone in complicating life for mining companies as developing countries from Latin America to Mongolia increasingly seek a greater share of their mineral resources.It's an interesting question for Australian politicians, given that we have the highest proportion of foreign ownership of our assets of any developed country in the world after New Zealand. Today Tonight and 60 Minutes have been cranking up the coverage about guest workers and immigration, but what about foreign capital?Truth be known, the huge profits being shipping offshore by foreign energy and mining companies is now close to the biggest single contributor to our appalling current account deficit. Without wishing to be xenophobic, the WA government's sweetheart deal with London-based Rio Tinto over the Shovelanna iron ore deposit and recent cuts in royalty payments for the mining giant goes strongly against the global trend to push for a greater local share of the profits.This is why we are putting together the first comprehensive lift detailing ownership and royalty arrangements for every Australian resource project worth more than $1 billion.Who owns our biggest resource projects?Argyle Diamond Mine: world's biggest diamond mine, owned by Rio Tinto which is London-based but 15% Australian owned. Royalty cut from 7.5% to 5% from January 2006 in exchange for $1 billion under ground expansion.Bass Strait: The Esso/BHP joint venture remains our biggest resource project in history having paid an incredible $68 billion in nominal taxes and at one point contributing 12% of Federal revenues. It's been in decline since 1986 when it peaked at 550,000 barrels a day and it's now down to about 100,000 barrels a day and falling at the rate of 15% a year. However, the 3.5 billion barrels produced so far are worth more than $300 billion in today's terms and there's still an estimated 15-25 years of life in the project thanks to plentiful gas reserves. With BHP 40% Australian owned, the overall local equity is just 20%, but the Federal Government is now raking in about $500 million a year in resource rent tax thanks to surging oil prices.Bayu-Undan and Darwin LNG: This gas field is 250km south of Suai in East Timor and 500km north-west of Darwin. The pipeline and recently commissioned $2.4 billion Darwin plant is operated by Houston-based ConocoPhillips with 56.72%. Other shareholders include Italy's ENI 12.04%, Santos 10.64%, INPEX 10.52%, Tokyo Electric 6.72%, and Tokyo Gas 3.36%. The entire output will be sold to Tokyo Electric and Tokyo Gas for 17 years. East Timor gets 90% of the royalties which are estimated to be worth $200 million a year when the project reaches full production. Given sky-rocketing oil and gas prices, the development is probably worth up to $5 billion. Australian ownership is about 7% and East Timor ownership is zero.Blair Athol: one of Australia's largest export thermal coal mines in Queensland's rich Bowen Basin which produces 9% of all coal used in Japanese power generation. Operated by Rio Tinto which owns 71.2%, Unisuper has 15%, Japan Coal Development Australia 10.4% and 3.4% is with J-Power, which operates 67 power stations in Japan. It produces 11 million tonnes a year which is worth about $800 million. The standard 7% Queensland coal royalty generates about $50 million and it is roughly 35% Australian owned.Boddington Gold Mine: Denver-based Newmont owns two thirds and South Africa's AngloGold Ashanti one third after Newcrest sold its 22.22% equity interest for $225 million in March this year, although this excludes project debt. The $1.9 billion redevelopment is forecast to generate one million ounces a year worth about $850 million on current prices. Australian ownership would be 5% at best through Normandy shareholders who accepted Newmont's scrip takeover. Gold is free of state royalties in WA.Ernest Henry: all the production figures at the Xstrata-owned copper-gold mine near Mt Isa are on page 41 of the 2005 results presentation. With 167,224 ounces of gold and 129,011 tonnes of copper concentrate, the $350 million mine should generate about $250 million in 2006. With annual profits of almost $100 million now flowing, the mine is presumably worth more than $1 billion after almost 10 years of production. Australian ownership is zero and the gold and copper royalty of 2.7% suggests Queensland taxpayers are collecting about $6 million a year.Gorgon: the giant LNG project off WA and gas processing plant at Barrow Island is now expected to cost as much as $18 billion with deliveries to begin in 2011. Operator Chevron has 50% with Shell and ExxonMobil each owning 25%. Heads of agreement have been signed with three customers for 25 years - Tokyo Gas, Chuaka Gas -bu Electric and Os with each taking 1.5 million tpy. The project is expected to generate $3 billion a year in export income and the Federal government will pocket an estimated $15 billion in resource rent tax over 25 years. The WA taxpayer gets nothing, but they are pressing the Federal government for a slice of the action. Zero Australian ownership but with huge construction blowouts that might not be such a bad thing.Kalgoorlie Super Pit: 50-50 joint venture between Canadian company Placer Dome and Denver-based Newmont which produced 833,320 ounces in 2005, worth $725 million based on current spot prices. Australian ownership of our biggest gold mine is less than 5% through Newmont and no gold royalty is payable in Western Australia.Mt Isa Mines: one of the few places in the world where the four minerals – copper, zinc, lead and silver – are found and mined in close proximity. Owned by Swiss-based and London-listed Xstrata since the MIM takeover in 2001, Mt Isa is now a bonanza with annual production capacity of 5.1 million tonnes of zinc/lead and 6.2 million tonnes of copper which produces revenue of almost $1 billion a year. Queensland royalty take is about $50 million a year.>Mt Newman: Australia's second biggest iron ore project is 85% owned by BHP Billiton, 10% by Mitsui-Itochu Iron and 5% by Itochu Minerals. 2005 production of 25.74 million tonnes were worth $1.5 billion, so the mine is worth at least $3 billion and Australian ownership is 34%. WA taxpayers pocket a 3.75% royalty worth about $56 million a year.>North West Shelf: The six equal participants in the North West Shelf Venture each own 16.67%. Woodside Petroleum, 38% owned by Shell, is the operator, then you have Shell itself, BHP Billiton, which is 40% Australian owned, BP, Chevron Corp and Japan Australia LNG (MIMI) Pty Ltd comprising a partnership between Japan's Mitsui and Mitsubishi. The Chinese government's CNOOC holds a 25% share in China LNG, a new joint venture within the existing structure that diluted the other parties down to 12.5% each. Exempt from the Petroleum Resource Rent Tax, which is levied at 40% of gross profit, but does pay royalty of about 10%, 68% of which passes to the Federal government. Overall Australian ownership is about 10% and a total of $19 billion has been invested so far.Rolleston Coal Mine: Swiss-based Xstrata's recently opened Queensland mine which cost $540 million. Sumisho Coal Australia and IRCA Rolleston each own 12.5%. Will generate $20 million a year for the Queensland government on the 7% royalty when production hits 8 million tonnes a year and generates revenue of about $400 million. Worth at least $1.5 billion given thermal coal contract prices have risen from $US32 a tonne to $US54 a tonne since 2002. Australian ownership close to zero.Yandi: Australia's biggest iron ore mine is owned as follows: BHP Billiton 85%, Itochu Minerals 8%, Mitsui Iron 7%. 2005 production of 35.66 million tonnes was worth $2 billion and this will rise again with the latest 19% increase in contract prices so the mine is clearly worth several billion dollars and it is 34% Australian owned through BHP Billiton's 40% Australian ownership. WA taxpayers pocket a 3.75% royalty worth about $75 million a year.Yandicoogina: Rio Tinto's biggest Australian iron ore mine in the Pilbara has a designed production capacity of 20 million tonnes per annum of fines, but is undergoing an expansion to 36 million tonnes. At the 2005 price of about $58 a tonne, this produces revenue of almost $1.2 billion for London-based Rio which is 15% owned by Australian investors. The 3.75% annual royalty payment generates about $45 million a year for WA taxpayers, but the mine is worth at least $4 billion for Rio Tinto shareholders.Keep the feedbackm corrections and new additions coming to smayne@crikey.com.au.