Despite Xstrata’s vehement opposition to the Federal Government’s RSPT proposal, it seems to have found life under the Northern Territory’s profit-based royalty regime very comfortable indeed.

Xstrata owns the McArthur River Mine, which is one of the world’s biggest lead, zinc and silver deposits. The mine, about 80 kilometres south of Borroloolla, commenced operating in 1995 under MIM, back when Xstrata was just a motley gathering of mining investments by Swiss-based tax avoiders Glencore. Xstrata bought MIM in 2003.

The NT is the only jurisdiction in Australia to have a purely profit-based royalty regime — introduced by those rabid communists the Country Liberal Party in 1982. The CLP originally wanted to introduce it at 35% but were browbeaten by the mining industry into setting it at 18%. Recently, Paul Henderson’s NT Government bumped it up to 20%. The NT royalty allows losses to be carried forward, but only against the same project — not used across a company’s operations like the RSPT would permit.

It also allows for creative accounting in determining what Net Value will be the basis for the royalty. That’s why first MIM, and then Xstrata, never paid a cent of royalties throughout the life of McArthur River to the NT Government — all perfectly legally.

It was only after Xstrata’s 2006 proposal to turn MRM into an open-cut mine that required the diversion of the McArthur River that attention was focused on its failure, and that of its predecessor, to pay anything.

The NT Government has consistently refused to reveal what royalties it has received from the mine, citing the confidentiality requirements of its Taxation Administration Act. In 2006, a document was leaked to the NT ABC showing not just that the mine paid no royalties, it was receiving a $5m pa subsidy from the Government.

The Xstrata proposal to expand the mine, and its approval by Clare Martin’s Government, infuriated traditional owners and environmentalists who took court action to overturn the NT Government’s approval and the approval of the expansion by then-Federal Environment Minister Ian Campbell. Action in the Territory Supreme Court to overturn the NT Government’s approval was successful, prompting Clare Martin to rush through emergency legislation in May 2007 to restore the mine’s approval.

Federal Court action to overturn the Federal approval was also successful in December 2008. Xstrata had to immediately shut down the mine. By 20 February last year, Peter Garrett had confirmed the mine’s approval, and it reopened immediately.

But after the fuss about MIM/Xstrata’s failure to pay any royalties from the mine, in July 2007 Xstrata suddenly produced a royalty payment: a half-year payment of $13m. It attributed the payment to improved profitability due to the conversion to open-cut mining — despite incurring a $110m cost to convert the mine and divert the McArthur River into a canal. Intriguing circumstances in which to make the mine’s first profit in 12 years of operation.

The subsidy to Xstrata, which Territory sources say has increased to $8m a year, has continued.

The Northern Territory Treasury told Crikey it was not permitted to reveal taxation details about individual entities — the same line its officials gave a Senate inquiry last year, which considered the NT royalty system and heard extensive evidence about MIM/Xstrata’s failure to pay royalties. However, Xstrata Zinc, the Xstrata subsidiary that operates MRM, was more forthcoming about what royalties it has paid since 2007.

The mine did pay a royalty in 2008, a spokeswoman told Crikey, although without revealing how much. However, none was paid in 2009. This was blamed on the two-month closure and the GFC — and because of Xstrata’s capital investment program. “Xstrata has invested $340 million in capital expenditure in MRM since acquiring the company in 2003. The NT Treasury audits MRM’s financial reports annually to assess the royalty payment due. MRM has complied fully with the terms of the McArthur River Project Agreement Ratification Act 1993, the Mineral Royalty Act and development approval conditions,” said the spokeswoman.

The chances of the McArthur River mine even paying back what it will receive in Government subsidies over the course of its life don’t look good.