New State agreements with iron ore majors

From July 1st, royalty rates will increase from 3.75 per cent of sales revenue to 5.625 per cent for fines and from 3.25 per cent to 5.0 per cent for beneficiated ore. The lump royalty will be 7.5 per cent.
This will apply to all production by the companies and will generate an additional $340 million in State royalties for the 2010-11 financial year and $1.06 billion over the next four years.
These changes to the State Agreements will enable BHP Billiton's existing iron ore operations to operate more efficiently, according to the company. They will also help facilitate the proposed West Australian Iron Ore Production Joint Venture between BHP Billiton and Rio Tinto, which is still subject to approval from regulators and shareholders.
Marcus Randolph, chief executive ferrous and coal, BHP Billiton, said, "The ability to blend iron ore from any of our mines, and the flexibility in the use of all rail and port infrastructure, will be major enablers for our operations. This will improve our operating efficiency and we are pleased to be able to share the gains from this enhancement with the people of Western Australia."
Rio Tinto said in statement that this agreement continues its drive for operational efficiency, and will assist in the next phase of its Pilbara expansion plans.
Sam Walsh, chief executive of Rio Tinto Iron Ore said, “This result has emerged from an extensive period of consultation and negotiation, and will deliver profound benefits for our iron ore business, our local Pilbara communities and the State in general.”
Under the Heads of Agreement the companies will also make a joint one-off payment to the State of $350 million.
Premier Colin Barnett said modernising the State agreements reflected the maturity of the iron ore industry in Western Australia.
“This is a win-win deal which gives the companies greater flexibility to integrate their operations and ensures a better return to the community,” Barnett said.
He said Western Australia’s iron ore industry has come a long way since the first State agreements were signed with Rio Tinto and BHP Billiton in the early 1960s.
“The old agreements recognised the pioneering role the companies would play in the region and offered a discounted royalty rate to acknowledge that fine ore was not a valued product in the market at that time.
“Since then the companies have made significant investment in dual purpose infrastructure in the region, including developing towns, roads, rail and ports.”
Barnett said the success of the 1960 agreements in developing the Pilbara means the rationale for discounted royalties is no longer relevant and the time has come to update them.
The Premier said legislation to formalise the royalty rate changes would be introduced this week.
The one-off payment of $350 million will be placed in a special account for the new Children’s Hospital, which is due to begin construction in 2012, Barnett confirmed.