Tracking foreign ownership of Australia’s resource projects

Crikey has produced more than 100 lists over the years and my 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. We’ll add five projects a day until we run out and would appreciate your contributions as this will be a major research exercise and we’ll try to eventually rank them all by value.

Who owns Australia’s resource dowry?

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. 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.Honeymoon: Canadian-Kazak company, SXR Uranium One/UrAsia, is behind the South Australian uranium mine which is expected to be producing 880,000 ounces a year in 2008. 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.A tripling of production to more than two million tonnes a year has put this nickel mine 53km north of Kalgoorlie into the big league. Xstrata is currently bidding for 80% owner Lion-ore of Canada and the other 20% is held by Scandinavian company Outokumpu.

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.

Brockman/Nammuldi: Located about 60 km north-west of Tom Price in the Pilbara and 100% Rio Tinto owned, so Australian ownership only 15%. First opened in 1992 and then re-opened after a major upgrade in 2003. Annual production of 8 million tonnes worth $560 million based on 2006 contract prices so WA royalty will be $21 million based on 3.75% rate.

Channar: The coastal Pilbara iron-ore mine has a capacity of 10 million tonnes worth about $700 million based on 2006-07 contract prices. Rio Tinto owns 60% and China Iron and Steel the remaining 40%, so overall Australian ownership is just 9% and the WA government’s 3.75% royalty would deliver about $27 million based on 2006 prices.

Eastern Range: Rio Tinto 54% and Shanghai Baosteel Group Corporation 46%, so overall Australian ownership just 8.1%. Produces 6.5 million tonnes a year worth $450 million based on 2006-07 contract prices so the WA royalty is about $17 million a year.

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.

Hope Downs: Rio Tinto 50% and billionaire Gina Rinehart’s Hancock Prospecting 50%, so Australian ownership is a healthy 57.5% at what will be Australia’s newest iron-ore mine when the $1.3 billion project goes into production by 2008. Full annual capacity of 22 million tonnes would generate $1.6 billion a year based on the 2006 contract prices of $70 a tonne.

Hunter Valley Operations: owned by Coal & Allied, which is in turn 76% owned by Rio Tinto, which is only 15% Australian owned. Produced 10.22 million tonnes of thermal coal and 1.8 million tonnes of semi-soft coking coal in 2006.

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.

Marandoo: Commissioned in 1994, this 100% Rio Tinto operation is located about 45km from Tom Price and adjacent to the Karijini National Park. The nominal production capacity of 15 million tonnes is worth about $1.05 billion based on 2006 prices. Australian ownership is only 15% but the WA government collects a 3.75% royalty worth about $38 million this year.

Mesa J: This Pilbara mine is the world’s biggest supplier of low grade iron-ore. A massive 50-60 million tonnes is shifted each year which, after processing, translates into about 32 million tonnes of saleable ore, worth about $1.8 billion. Rio Tinto owns 53%, Mitsui 33%, Nippon Steel 10.5% and Sumitomo Metal 3.5%, so overall Australian ownership is just 8% but the WA government pockets a 3.75% royalty which is worth about $70 million a year for taxpayers.

Mt Tom Price: Rio Tinto’s oldest operation started production in 1966 and still produces up to 20 million tonnes a year worth up to $1.4 billion based on 2006 contract prices, although this is in decline. Australian ownership only 15% through Rio but WA government royalty of 3.75% will produce about $50 million this year.

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 Thorley: 20% owned by South Korean steel giant POSCO and 80% owned by Coal & Allied, which is 76% owned by Rio Tinto, which in turn has Australian ownership of 15%. Therefore, this Hunter Valley mine, which produced 2.9 million tonnes of thermal coal for export in 2006, has Australian ownership of less than 15%.

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.

Paraburdoo: in the Pilbara near the coast and 100% owned by Rio Tinto which is 15% Australian owned. Produced 11 million tonnes in 2005 which is worth $770 million based on 2006 prices so the WA royalty would be $29 million based on 3.75%.

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.

Wambo: last year’s $2 billion takeover of Excel Coal by American company Peabody Energy means that the Wambo thermal coal mine is 100% foreign because Japan’s Sumitomo Corporation is entitled to the other 25% of the profits. Mine production is scheduled to expand from 3 million to 8 million tonnes a year, all of which will be exported through Newcastle.

West Angelas: The $880 million Pilbara iron ore mine commenced production in 2002 at a rate of 7 million tonnes per annum, but is now up to 25 million, which will be worth $1.75 billion based on 2006-07 contract prices. Rio Tinto owns 53%, Mitsui 33%, Nippon Steel 10.5% and Sumitomo Metal 3.5%, so overall Australian ownership is just 8% but the WA government pockets a 3.75% royalty which should be worth $65 million next year.

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.ent 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.

Feedback, corrections, additions and insights to smayne@crikey.com.au and feel free to help out on the valuations, plus historical figures on how much the individual projects have produced over the years and what they would be worth today if sold.