Dubbo City Council wants to collect an estimated $1.3 million each year from a mining company even before the $1 billion venture is generating revenue.
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The council has viewed the Dubbo Zirconia Mine at Toongi as a “one-off opportunity” to obtain a substantial gain in its notional income to use for the benefit of the community.
Its proposed mining rate would add to the burden of an Alkane Resources subsidiary during its project’s earliest stages of operation.
The proposed ad-valorem rate of 0.6 cents for every dollar of land value would result in Australian Zirconia Limited (AZL) paying $1.3 million each year to the council if the value of its land is confirmed at $30 million, according to figures in a council report.
The company has appealed to the council to introduce the new rate regime in stages, first in writing and then this week in person.
It is waiting on approval from state planning authorities for its project, set to become the first mine within Dubbo Local Government Area boundaries and employ hundreds of people.
AZL currently pays rates on its Toongi holding at the farmland level, 0.7 cents in the dollar, but under the council proposal that would change once a mining lease was granted and the NSW Valuer General had reviewed the value of the land.
The company agreed with the creation of a mining rate category and the setting of an ad-valorem rate, but would like the council to consider changes to the timing, AZL chief operations officer Nic Earner said in a submission to the draft policy.
“Whilst the numbers used (by the council) are correct, the conclusion drawn regarding capacity to pay does not adequately recognise the sheer scale of the investment the company is undertaking and the effect of that investment on the cash flow of the business,” he said.
The chief operations officer said assuming the project was granted approval in the June to September quarter of this year and secured a mining lease and project finance simultaneously, it could “reasonably expect” to have outflows of $400 million in 2014-2015 and $600 million in 2015-2016.
It would then generate first net cash inflows into its business in 2016-2017, he said.
AZL proposed growing the ad-valorem rate from 1.33 cents in the dollar in 2014-2015 to the full 6 cents in the dollar by 2017-2018.
Council organisational services director Craig Giffin argued against AZL’s proposal in a report to the council’s finance and policy committee meeting this week.
He said it would result in a potential income increase of $289,674 in 2014-2015, compared with $1.3 million if the council stuck to its plan.
“There are no doubt many other local businesses, certainly smaller in size, that would enjoy special exemptions to have in place a sliding rate payment based on their anticipated cash flow. . .” he said.
“The fact that the land has such an estimated value ($30 million), and based on what other mines are paying, the inclusion of a 6 cents per dollar mining category. . . is a one-off opportunity for council to obtain a substantial gain in its notional income to provide funding for community-wide infrastructure and improvements.”
Mr Earner addressed councillors at the meeting, reiterating the arguments put forward in the submission, but said the company would continue to work constructively with the council regardless of the outcome.
Councillors endorsed the recommendations of Mr Giffin and a final decision will be made at the council’s ordinary meeting on Monday.