Major new gold mining projects to pay old royalty rate as gold soars

Neither project has begun production; this is expected next year for both projects, though in the Waihī case this will depend on achieving regulatory consents.

In 2013, the gold royalty rate for major projects rose to an annual 2% of net revenue or 10% of accounting profit, whichever is higher – the rate applies to so-called tier 1 projects, which are complex and high-value.

The previous rate, fixed in 1996, is 1% of net revenue or 5% of accounting profit.

When the 2013 regime was introduced, mining permits already issued retained the old royalty obligations.

The relevant mining permits for both the Endura and Waihī projects date to the previous royalty regime.

No miner has yet paid the increased 2013 gold royalty rate for significant operations; the only current tier 1 producer is Vancouver-based Oceana, which accounts for the majority of New Zealand’s gold production.

It produced 178,800oz in the last full calendar year. None of its production is subject to the new, post-2013 royalty.

Endura purchased the Snowy River property, including related mining permits, from Oceana last year. Oceana purchased the Waihī operation, including related mining permits, from Newmont Mining Corporation in 2015.

Depending on the future gold price – which currently sits close to a record high at about $7000 an ounce – the difference in applying the earlier royalty to the new projects could be worth hundreds of millions of dollars to the companies.

Waihī North is an expansion plan, linked to Oceana’s existing Martha mine in Waikato.

Snowy River covers a historical mine site, originally part of the Blackwater mine that closed in the 1950s.

Professor Glenn Banks of Massey University told the Herald: “New Zealanders are being short-changed.”

Banks said that if the higher obligations were regarded as “a fair share” for miners back in 2013, it is unacceptable that those rates do not apply now, especially for new or revived mines and expansions that will take place more than 12 years after the royalty regime changes.

Bryan O’Hara, Endura Mining’s vice-president of corporate development, said that by the time the Snowy River mine reaches first production in 2026, over $400 million will have been directly invested in it.

Former tourism boss Richard Lauder, who chairs several boards working on environmental issues, said “the big issue is letting mining companies expand under the old 1% royalty licences”.

He argued that even the post-2013 rate is “already out of date” and noted that the Crown charges tourism companies 7.5% of revenue to host people in national parks: “extracting NZ and selling it offshore should pay a lot more than 7.5%”.

However, even Resources Minister Shane Jones, who recently declared a “resources golden era”, conceded there is a “legitimate point to be made” on whether New Zealand’s gold royalty regime is acceptable.

“We want to continue to boost [mining] attractiveness ... and do as much as we can to drive inward investment, but I’m not deaf to criticism, we do have to consider whether the royalty regime is adequate, but it’s going to have to wait until after the election,” he said.

Labour’s resources spokesman Damien O’Connor recently told a West Coast mining audience that royalties are disgracefully low.

“It’s only right to ask whether the current system is delivering its fair share back to the public,” O’Connor told the Herald, but he noted that the pre-2013 rates “were locked into existing permit conditions”.

Oceana’s application for consenting of its Waihī expansion project under the fast-track legislation included an estimate the plan would generate $131m in royalties to the Crown.

A company spokesman confirmed that the figure is predicated on paying 5% of the related accounting profit over the period.

Alison Paul, Oceana’s senior vice-president legal and public affairs, noted that royalties are structured “to produce a return on revenue and profits whatever those may be at the time of extraction and sale, meaning a lift in the commodity price for say gold and silver translates to a corresponding increase in royalties”.

She said the current historically high gold price is already translating to increased royalty revenue for the Government.

Oceana’s disclosures show that in 2013 it paid royalties in New Zealand of $5.24m and corporate tax of $5.97m. In 2023, it paid $4.71m in royalties and no corporate tax.

Paul also noted that minerals permits “have a limited timeframe within which permit holders must explore, take discovery to the stage of being an identifiable resource and establish feasibility to mine. That duration is a maximum of 18 years and the investment over that time can be tens or even hundreds of millions of dollars”.

She said miners invest in exploration on assumptions around the potential return on investment and it would be inappropriate to retrospectively change “what is in effect a contract between the permit holder and the Government to increase the Government share in that partnership”.

Banks said it would be reasonable to make some provision for existing permit holders when royalty regimes change; he suggested a “sunset clause” could ensure that low, grandfathered rates didn’t endure for decades once a government decided they were insufficient.

Steve Abel, the Greens’ resources spokesman, said: “there is no amount of royalties that justifies the destruction of nature or the climate chaos caused by gold, coal and seabed mining”.

Earlier this month, the Ministry of Business, Innovation and Employment granted a new, 30-year mining permit to Santana Minerals; Santana’s planned Bendigo Ophir mine in Central Otago is currently under consideration Fast-Track consenting.

The permit carries the new, post-2013 royalty obligations.