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Industries Assistance Commission - Reports - Production of gold, 6 June 1975


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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

1975— Parliamentary Paper No. 198

Industries Assistance Commission Report

PRODUCTION OF GOLD

6 JUNE 1975

Presented by Command 19 August 1975

Ordered to be printed 11 September 1975

THE GOVERNMENT PRINTER OF AUSTRALIA CANBERRA 1976

Printed by Authority by the Government Printer of Australia

INDUSTRIES ASSISTANCE COMMISSION REPORT

PRODUCTION OF GOLD

THE HONOURABLE THE SPECIAL MINISTER OF STATE

I am directed by the Commission to forward its report on

"Production of Gold" made in accordance with the reference, dated 8 April

1974, from the Prime Minister under Section 23 of the Industries Assistance

Commission Act 1973.

I am also directed to indicate that the release of the report

as soon as it is printed would not, in the view of the Commission, be likely

to result in any damaging speculation.

A.G. Kerr Acting Secretary

6 June 1975

For the purpose of the inquiry and report on this natter, in accordance

with Section 19 of the Industries Assistance Commission Act 1973, the

powers of the Commission have been exercised by :

C.W. CONRON ....................... COMMISSIONER

R.F. LIVINGSTONE ASSOCIATE COMMISSIONER

CONTENTS

Page

1. Summary 1

2. General 5

3. The world market for gold 7

4. Australian industry 16

5. Assistance provided to the industry 33

6. Conclusions 44

7. Recommendations 48

Appendices

1. Terms of reference 50

2. Witnesses and abbreviations 51

3. Requests and suggestions 56

4. Tariff provisions 61

PRODUCTION OF GOLD

1. SUMMARY

1.1 Current assistance

1.1.1 Australian Government provisions for assistance to the gold-mining

industry have comprised subsidy assistance under the Gold-Mining Industry

Assistance Act 1954-1972 and concessions under sections 23(o), 23C(1) and

23C(2) of the Income Tax Assessment Act which exempt the income received by

persons and companies engaged in gold mining.

1.1.2 In the Commission's opinion, these measures are inappropriate for

the current situation.

1.1.3 With respect to the Gold-Mining Industry Assistance Act no signifi­

cant payments have been made since 1972-73. The concessions provided under

this Act were designed for the situation where the price of gold was maintained

at an artificially low level. Unless there is a major reversal of world monetary

policy it is unlikely that the price of gold will ever again be subject to the

constraints which were applied in the past. Consequently, the need for direct

financial assistance in the form of a subsidy to compensate producers for arti­

ficially depressed prices appears to have been permanently removed.

1.1.4 With respect to the taxation concessions, there are two principal

reasons why assistance in the form currently provided is inappropriate.

1.1.5 First,with the large increases in the price of gold which have

occurred in recent years, the cost of these tax concessions in terms of the

taxation revenue forgone has greatly increased. In 1973-74, the cost to the

general community of these tax concessions totalled over $12 million and, by

1980, they could cost in excess of $40 million annually depending on movements

in production costs and in the price of gold.

1.1.6 Second, and more importantly, the taxation provisions provide ass­

istance to the gold-mining industry which is not available to other forms of

mining. Under the current situation where gold prices are not depressed by

government action, the taxation concessions mean that gold mining receives more

assistance than other forms of mining activity. It would be undesirable if

1.

PRODUCTION OF GOLD

such a situation were to be continued on a permanent basis since it must event­

ually result in a misallocation of resources between gold mining and other forms

of mining.

1.1.7 The Commission considers that these concessions can no longer be

justified and reconmends their removal. In order to avoid undue disruption in

the industry, the Commission has recommended the phasing out of the existing

taxation measures over a period. Under this proposal, gold producers would be

subject to the same taxation provisions as other mineral producers by July 1980.

1.1.8 It has been recommended that, at any time in the interim period, a

gold miner may elect to be treated as a general miner. Thus, any gold miner

would be entitled to forgp the tax concessions provided in the interim period

in order to take advantage of any assistance which might be provided for the

general miner. This will ensure that at no time in the future will gold prod­

ucers be disadvantaged in relation to other miners.

1.1.9 As prospecting is an activity which is not confined solely to the

search for gold and as the Commission can see no reason why prospecting for

gold should be treated differently from prospecting for minerals in general,

the question of assistance to the small gold prospector would be more approp­

riately considered by the current inquiry into the Petroleum and Mining

Industries.

1,2 Summary of the Commission’s recommendations

1.2.1 The recommendations which the Commission has made are summarised

below.

. The Gold-Mining Industry Assistance Act should be permitted to lapse

. As from 1 July 1980 all gold producers should be subject to the same taxation provisions as any other form of mining activity

. In the interim period the tax exemption should be phased out, commencing 1 July 1976. Recommended rebates on taxable income for each year are shown in the schedule below:

2.

PRODUCTION OF GOLD

1976- 77 - 90% of taxable Income 1977- 78 - 75% of taxable Income 1978- 79 - 50% of taxable Income 1979- 80 - 25% of taxable Income

. At any time in the interim period (1 July 1975 to 30 June 1980) a gold producer may elect to be treated as a general miner for taxation purposes. Such an election should be irreversible.

. There should be no differentiation for taxation pur­ poses between the small gold prospector and prospectors for other minerals.

1.3 Effects of the Commission's recommendations

1.3.1 A number of factors which are quite independent of the Commission's

recommendations may significantly affect the future profitability of producers

in this industry. These factors include the exhaustion of known reserves,

increasing difficulty of replacing ore reserves and the availability of

mining labour. Several mines in the industry are close to exhausting their

known ore reserves. Two major mines, Juno and Mount Morgan, and some other

producers not represented at the inquiry are in this position. While some

mines have prospects of increasing their proven resources, exploration programs

in recent years have not been successful in locating significant new deposits.

The increasing cost and difficulty of discovering new gold deposits may sign­

ificantly influence some producers’ long term prospects. A shortage of under­

ground mining labour in Australia and the high turnover of labour have already

restricted production and increased the operating costs of many gold mines.

Continuation of these problems may severely affect the future operating effic­

iency of the industry.

1.3.2 In the Commission’s view, most producers represented at the inquiry

can achieve adequate returns without assistance, provided that labour problems

can be overcome and that, in the case of some mines, the necessary development

and rehabilitation is undertaken to increase production to most economic levels.

The Commission’s recommendation to phase out tax exemptions will assist the

industry to finance the necessary investment.

1.3.3 in the long term, the major effect of the Commission s recommendations

is that investment decisions in the gold-mining industry will be subject to the

3.

PRODUCTION OF GOLD

same considerations as investment decisions in other mining activities. Hence

the allocation of resources within the mining sector will not be distorted

since all mining will be subject to the same taxation provisions.

1.3.4 Employment in the industry over the next two or three years is

unlikely to be affected by the recommendations. In the longer term it is

possible that decisions to close particular mines may have to be faced earlier

because of the abolition of the tax exemptions, but the effect on the life of

the mines is not expected to be significant.

1.3.5 Any estimate of the cost of assistance provided to the industry by

phasing out the tax exemptions must be speculative because of uncertainty as to

future movements of the gold price, production costs and levels of production.

However, it is believed that the recommended phasing out provisions could cost

between $60 million and $130 million in revenue forgone (between $50 million

and $110 million in discounted terms).

PRODUCTION OF GOLD

2. GENERAL

2.1 The reference

2.1.1 This reference, the terms of which are shown in Appendix 1, was

referred to the Commission on 8 April, 1974 for inquiry and report in accordance

with Section 23 of the Industries Assistance Commission Act 1973. It asked

whether the Australian Government should accord assistance, including assistance

by way of taxation treatment, for the production in Australia of gold. The

reference directed the Commission to include the small gold prospector in its

inquiry and report. The reference required the Commission to present its report

within 14 months of the date of reference. The Commission has interpreted the

reference to cover all those activities involved in producing gold to the stage

of refined metal.

2.2 Inquiry information

2.2.1 The matters covered by the reference were the subject of a public

inquiry conducted by the Commission at Melbourne on 11 November, 1974 and at

j Perth on 14 and 15 November, 1974. Copies of the official transcript of public evidence submitted by witnesses have been forwarded to the Minister.

I 2.2.2 The witnesses who gave evidence at the inquiry are listed in

Appendix 2. Abbreviations used in this report for the companies, mines and

organisations represented at the inquiry are also listed in Appendix 2.

I 2.2.3 Details of the requests and suggestions which have been submitted

j to the Commission are set out in detail in Appendix 3. Most of the gold-mining

I companies and individual gold miners requested the continuation, either indefinitely

| or for various periods, of existing taxation concessions exempting from taxation

' income earned from the production of gold (including dividends paid by the Gold

Producers' Association) and the reintroduction of exemption from taxation of divi-

: dends paid to shareholders from exempt income. Several witnesses requested long

term low interest loans although most of these requests related to the provision

of housing and infrastructure facilities. Some witnesses, supported by the WA

Chamber of Mines, requested loans to finance the rehabilitation of mines and the

5.

PRODUCTION OF GOLD

reconstruction or provision of plant. A number of requests for the introduction

of a depletion allowance were also received. General requests for assistance

to the gold-mining industry were submitted by the Departments of Mines Western

Australia and South Australia.

6

PRODUCTION OF GOLD

3. THE WORLD MARKET FOR GOLD

3.1 The monetary significance of gold

3.1.1 The world market for gold since World War II has reflected

changes in the international monetary system. It is only since the estab­

lishment of the two tier market in 1963 that the gold market has become

a free market where institutional restrictions have not hampered movements

in price. The continued acceptance of gold as a store of value and as a

medium of international exchange make it an attractive commodity to hoarders,

investors and speculators who exert a major influence on the gold price.

3.1.2 The Bretton Woods Agreement of 1944 established the basis of the

post-war international monetary system. Under this agreement the major trad­

ing countries each agreed to maintain a fixed rate of exchange between their

currencies and gold. For most of the period since 1944, the United States

Government’s guarantee to exchange gold for dollars at $US 35 per ounce,

was the main determinant of the price of gold. Changes in the price of gold

in any country occurred only as a result of changes in that country's ex­

change rate. The major gold producing countries required all newly won dom­

estic gold to be delivered to their central banks. Private demand for gold

was satisfied by releases from official holdings at the official price.

Initially, this system was successful because monetary gold holdings were

in excess of those needed to settle international trading transactions and

new mine production continued to exceed private demand.

3.1.3 As the volume of world trade increased so did the need for an

increased volume of international reserves. Proposals that an increase in

the price of gold would solve this problem were unacceptable to some major

trading countries and the need for increased reserves was largely net by

increased holdings of United States dollars. This resulted in potential

foreign claims on United States' gold exceeding its gold holdings. In 1967

speculative nurchases by private holders of gold increased substantially

in anticipation of a rise in the price and a devaluation or sterling. As

a result, private demand exceeded the supply of newly rained gold. In res­

ponse to the mounting pressure of speculative purchases, the major non­

Communist countries undertook in early 1963 not to make any further releases

of gold from their official holdings. A two tier market structure was est-

7.

PRODUCTION OF GOLD

ablished under which newly mined gold was sold on the free market at an

unconstrained price while official monetary transactions and purchases by

central banks were undertaken at the official price.

3.1.4 The role of gold in the international monetary system has been

further reduced since the establishment of the two tier market system. In

August 1971 the United States Government announced that it would no longer

guarantee to maintain convertibility of its currency with gold. The Inter­

national Monetary Fund made its first issue of unconditional international

reserve assets in 1970. These assets, called Special Drawing Rights (SDR),

represent a claim on the Fund’s holdings of members' currencies and were

created to meet the need for increased international reserves and to reduce

the reliance on reserve currencies, principally the United States dollar.

Initially, the SDR werevalued in terms of the United States dollar and gold.

In December 1971, the United States Government agreed to raise its gold price

to $US 38 per ounce, which amounted to a devaluation against gold and the SDR.

The United States Government’s price of gold was again increased by an

official devaluation of 10 per cent in February 1973, to $US 42.22 per ounce.

Since July 1974, the SDR have been valued in terms of a 'basket' of currencies

in which each currency has different relative weights. The advantage of this

method of valuation is that it minimises the effects of a change in the ex­

change rate of any one currency on the value of the SDR. The two tier market

officially ceased to exist in November, 1973 when central banks dissolved their

1968 agreement not to make sales of gold from official holdings. Recently,

both France and Italy have valued their official gold holdings at near their

free market value.

3.1.5 Current proposed amendments to the International Monetary Fund's

Articles of Agreement, if accepted, will further reduce gold's monetary role.

These amendments include the elimination of the obligation of member countries

to use gold when making certain payments to the Fund, improved characteristics of

the SDR to make them the principal reserve asset, more liberal provisions for

the floating of currencies, abolition of the official gold price and greater

freedom for monetary authorities to engage in transactions involving gold.

PRODUCTION OF GOLD

3.2 The demand for gold

3.2.1 Table 3.1 gives an estimate of gold market demand and supply

(for non-Communist countries) over the period 1968 to 1973. The relative

magnitudes of the different components of demand for gold are also shown in

this table.

3.2.2 The demand for gold can be separated into several major com­

ponents . These include industrial or fabricative demand for gold on the

basis of its unique physical and chemical properties and demand for gold

as a store of value for investment. The demand for gold as an investment

includes a substantial speculative element.

3.2.3 Jewellery, the major use of gold, absorbed three-quarters of

total supplies in 1971, when speculative and hoarding activity were minimal.

However, the amount of gold fabricated into jewellery declined by more than

50 per cent in the period 1971 to 1973, mainly because of increases in the

gold price. Much of this decline occurred in developing countries where

purchasing power is limited by low incomes. In more advanced countries,

where purchasing power is not as limited and jewellery purchases are gen­

erally only a small part of total expenditure, the demand for gold jewellery

has been less affected by price increases.

3.2.4 The major sources of industrial demand (other than jewellery)

for gold are in electronics, dentistry and other high-technology areas.

The amount of gold used in these areas accounted for approximately 20 per

cent of total demand in 1973. Gold is used in these applications because

of its physical and chemical properties such as high conductivity, malle­

ability and relative chemical inertness.

3.2.5 Demand for gold for industrial purposes, excluding jewellery,

has been relatively insensitive to price increases and has grown steadily

since 1968. The trend may continue for a number of reasons: there are few

suitable substitutes for gold in many industrial applications, the cost of

gold in these uses frequently is only a small part of total cost and increases

in the demand for electronic equipment may more than offset reductions in

9.

PRODUCTION OF GOLD

the amount of gold used per component resulting from increases in the price of

gold. Dental use, however, may decline because of the substitution of other

materials.

3.2.6 The use of gold in coins and medals is largely associated with

investment or speculative demand. Consequently, the amount of gold used for

this purpose fluctuates markedly. For example, South Africa is known to

have substantially increased its production of Kruger Rands (coins containing

1 troy 02 of fine gold) in 1974.

3.2.7 The extent of fluctuations in speculative, investment and

hoarding demand is clearly evident in Table 3.1. Such activity reflects

changes in the economic and political environment, especially changes in­

volving the international monetary system. As already mentioned, such

purchases increased substantially in 1967 and 1968. However, following

the actions of central banks in maintaining exchange parities and supporting

the two tier market, there were some releases from these holdings in 1969

and 1970. Speculators again entered the market in 1973 as a result of un­

certainty in the exchange rates of some currencies and rising inflation

rates.

3.3 Supply

3.3.1 Gold is a convenient store of value because its quality does

not deteriorate over time, its fora can be changed without any significant

loss in quantity or quality and it has a high value per unit of weight.

Supplies of gold may come not only from mine production but also from

hoardings and world monetary stocks. The USSR is at times a significant

supplier of gold to the open market.

3.3.2 Table 3.1 shows estimated non-Communist mine production of

gold in 1973 at a little over 1,100 tonnes, about 75 per cent produced in

South Africa and 5 per cent in Canada. Other important producers were the

United States, Ghana, Papua-New Guinea and Australia, which each accounted for

between 1 and 4 per cent. World gold production increased slightly during the

1960s to reach about 1,300 tonnes per annum in 1970 but has since declined.

11.

PRODUCTION OF GOLD

Much of this recent decline is attributable to declining production from

South Africa where mines have been working lower grade orebodies which

have recently become economic as a result of higher gold prices. In South

Africa, producers are required by Government regulations to mine to the lowest

economic ore grade. It is difficult to foresee any significant increase in

mine production in non-Coimnunist countries over the next four or five years.

Any increase in mine production would have to come from new mines (new dis­

coveries, old deposits made economic and re-opening of closed mines) or exp­

anded capacity at existing mines; such changes may require considerable time

periods. For example, three new large mines are currently being developed in

South Africa but will not commence production before 1978.

3.3.3 The amount of gold in private holdings is unknown. However,

it has been estimated that between 3,000 and 6,000 tonnes of gold is hoard­

ed in France, which suggests that total private holdings may be substantial.

Monetary holdings of gold by countries and international authorities total­

led almost 37,000 tonnes at the end of 1973. This is more than 30 times the

current level of mine production by non-Communist countries. Although gold’s

monetary role has been reduced in recent years, it seems unlikely that central

banks would sell gold in amounts which would seriously depress open market

prices.

3.3.4 Sales of gold by the USSR are usually made to obtain foreign

exchange and are not necessarily related to the quantities of newly mined

gold produced. The USSR is reported to have produced about 370 tonnes of

gold in 1973 and to have stocks of approximately 2,700 tonnes.

3.4 The Australian market

3.4.1 The Australian supply and demand for gold is a small compon­

ent of the world market. Local supply exceeds demand so that Australia is

a source of supply to the world market. The major buyers of gold in Australia

are believed to be jewellers and other industrial users such as dentists and

electronic firms. Precise estimates of Australian use of gold are not avail­

able but it is believed to be between 3 and 4 tonnes per annum.

3.4.2 The marketing of gold is regulated by provisions in the Banking

Act which require all newly mined gold to be delivered to the Reserve Bank or

12.

PRODUCTION OF GOLD

jits agents, for which the producer receives the official price (currently

$32.25). The gold is then sold to the Gold Producers’ Association (GPA)

which sells it on the open market at a price based on the daily price

fixings on the London bullion market. The GPA distributes the premium

between the official price and the net realised price to producers on a

aonthly basis. Witnesses claimed in evidence that this premium was gen­

erally received some three or more months after the disposal of the gold

to the Reserve Bank and that this delay represented a significant financial

cost to them.

3.4.3 Provisions under the Banking Act prohibit unauthorised individ­

uals from dealing in or holding gold other than in the form of jewellery or

coins. Consequently, there is no free market for gold in Australia and

Australian citizens are prevented from investing in gold. The Commission

notes that, in recent years, various countries have repealed legislation that

prevented private citizens from holding gold. The legislation permitting

! private ownership of gold in the United States of America in January 1975

: appears to have had no significant effect on the world market. '

3.5 Outlook for the world gold market

j λ 3.5.1 Table 3.1 indicates that, for non-Communist countries in the latter part of the 1960s, the demand for gold for industrial purposes and

ί jewellery was approximately equal to mine production. Since then, the demand

for industrial purposes (other than jewellery) has increased despite the rapid

rise in the price of gold. The increase in industrial demand is expected to

' continue. Jewellery demand has fallen, however, largely because demand for

f jewellery in underdeveloped countries is price-elastic. Despite recent in­ . creases in the price of gold, it appears unlikely that there will be any sign­

ificant increase in the supply of newly mined gold in the near future.

" 3.5.2 The open market price of gold has largely been influenced by

speculators and investors whose purchases and sales have fluctuated since

1968. The continuance of high inflation rates and uncertainties with regard

to exchange rates could make gold continue to appear an attractive commodity,

" 3.5.3 Although the gold price has increased nearly fourfold since

1970, the increase in real terms has not been as great. Only since 1972

13.

PRODUCTION OF GOLD

have increases in the gold price exceeded the rate of inflation. Figure

3.1 shows movements in the gold price relative to general price levels

in Canada, South Africa, the United States and Australia between 1910 and

1974. While the general price indexes.are not directly comparable between

countries, the graph does indicate the extent to which the almost constant

price of gold in South Africa and Australia between 1950 and 1971 was

eroded by inflation.

3.5.4 In their evidence witnesses mentioned various factors that

have influenced the gold price since mid-1973. These included the weakening

of the United States dollar, fluctuations in the exchange rates of major

currencies, widespread inflation, the oil crisis and the Arab-Israeli war.

Witnesses also mentioned many factors that could affect movements in the

gold price in the future. In predicting the future gold price, Kalgoorlie

Lake View stated that if inflation continued a steady increase in the

gold price could reasonably be expected; Mount Morgan expected the gold

price to increase at a rate in line with or a little faster than world

inflation. Other witnesses, in their evidence, refrained from making any

long term price projections. After giving consideration to developments

in the international monetary system and factors influencing supply and

demand, the Commission believes that long term changes in the price of gold

will be related to world inflation rates although there may be substantial

short term fluctuations.

14

FIGURE 3.1: INDEX OF REAL GOLD PRICES: CANADA. SPUTH AFRICA, UNITED STATES AKD AUSTRALIA" y_1960_TO_197A

1926 = 100

·' 1,,.1,-x of U s o u prices for Canada, South Africa and the United States were deflated by an index of wholesale ,,, ices. h, 111,· case of Australia the rtmsumer price index was used. All data are on a calendar year basis.

Source· Hi reel, F. "Influences on Gold Production", in Tnlemati.onal Monetary Fund Staff Papers, Vol. XV, 1968, pp. .·,*7-488 for Canada and the United States (1910 to 1966) and South Africa (1910 to 1965). These indexes were upilat oil to 174. The Australian gold price was constructed from data in the Australian Year Book, v >■-.■..*■;· . · ■ ■ > > ; ’: · . · . industries , ABS and Minerals and Mineral Products, A B S , R e f . No. 10-19. The

Consumer P r i m index is from the Lihmr Report, ABS, various issues.

PRODUCTION OF GOLD

4. THE AUSTRALIAN INDUSTRY

4.1 Background

4.1.1 Although the occurrence of gold in Australia was reported in 1823,

the first recognised discovery of gold in payable quantities was in 1851 near

Orange, New South Wales. During the ensuing 25 years, a number of other major

gold deposits were discovered in New South Wales, Queensland and Victoria, and

some of lesser importance in Tasmania and South Australia. The major fields

were at Hill End, Cobar, Parkes-Forbes, Hi11grove and Orange in New South Wales;

at Stawell, Ballarat, Bendigo, Castlemaine, Walhalla and Gaffneys Creek in

Victoria; and at Gympie, Mt. Morgan, Cracow, Charters Towers and Palmer River

in Queensland. Production from most of these areas has now ceased. The first

recorded production in the Northern Territory was in 1880 and the most pro­

ductive mines have been located in the Tennant Creek area. In Western

Australia, the first recorded production of gold was in 1886. Production

expanded rapidly with the discovery and development of the Eastern Goldfields

(principally the Coolgardie/Kalgoorlie area); from about 10 kg in 1886, out­

put had expanded to about 45,000 kg by the turn of the century. While many of

the deposits have now been exhausted, Western Australia remains the main gold

producing State in Australia.

4.2 Structure and location

4.2.1 According to the Australian Bureau of Statistics (ABS), in 1972-73,

there were 46 establishments mainly engaged in mining gold (excluding copper-gold

ores) or in dressing, beneficiating or preliminary smelting of gold. These

establishments were located in all States (except South Australia and Tasmania),

and in the Northern Territory, and ranged from small one-man operations to large

mechanised mines. In recent years, the six major mining companies giving evi­

dence produced from 79 to 84 per cent of total Australian gold production. At

present, the principal gold mines are those associated with Western Mining and

the Peko-Wallsend group.

4.2.2 Western Mining has interests in Kalgoorlie Lake View, Gold Hines

of Kalgoorlie, and Central Norseman and has recently acquired a substantial

share holding in Hill 50. Kalgoorlie Lake View was formed in 1973 to combine

the operations of two gold producers, Gold Mines of Kalgoorlie and Lake View

and Star Limited, both of which operated gold mines in the Kalgoorlie area.

Central Norseman operates a gold mine at Norseman, W.A., while Hill 50 operates

a gold mine at Mt. Magnet, W.A. 16.

PRODUCTION OF GOLD

*•2.3 Peko, a subsidiary of Peko-Wallsend, owns a number of mines in the

Tennant Creek area of the Northern Territory. Of these mines, the most import­

ant producers of gold are Warrego, Juno and Peko and Juno is the only discrete

gold mine qualifying for the income tax exemptions. However, reserves at Juno

suggest that the mine will cease production by mid-1976 while current mining

operations at Warrego are based on a small gold-rich deposit associated with

the main copper/gold orebody. Peko-Wallsend also owns the Mount Morgan mine

which produces gold as a co-product with copper.

4.2.4 Other companies producing gold which submitted evidence were Wattle

Gully (operating a newly re-opened mine at Chewton, Victoria) and North Kalgurli

(operating a mine at Kalgoorlie). A number of other producers, including

Australian Development Limited at Tennant Creek, Golden Plateau N.L. at Cracow,

Queensland and several companies which produce gold as a by-product of base metal

mining operations did not give evidence at the inquiry.

4.2.5 A number of new companies have been formed in recent years to re­

open old gold mines which, it was stated in evidence, have become economic

because of the rise in the free market price of gold. Evidence was received

in this category from All Nations Mining Syndicate, Lone Star, Metramar, and

Spargo’s Exploration. It is understood that there are some other prospective

producers of gold such as Newmont Proprietary Limited in Western Australia.

However, no evidence was presented by these companies.

4.2.6 There are also many smaller mines operated generally by one man

or, in some cases, small syndicates. The output of these producers makes only

a small contribution to total production. Evidence was received from a number

of these producers.

4.2.7 Evidence was also received from the Department of the Northern

Territory and the Departments of Mines of Western Australia and South Australia

which operate batteries to process ore for small producers to the stage of

bullion.

4.2.8 Of the three major refiners of gold in Australia, Matthey Garrett Pty.

Limited and Engelhard Industries Pty. Ltd., submitted evidence. Matthey

Garrett’s refinery is located in Sydney, New South Wales, and Engelhard Ind­

ustries' at Thomastown, Victoria. Both companies refine other precious metals

17.

PRODUCTION OF GOLD

and are also engaged in semi-fabrication of precious metals. A third refinery,

the Perth Hint, which is the largest in Australia, did not submit evidence.

4.3 Resources and reserves

4.3.1 'Resources’ were taken by the Commission to mean the total meas­

ured or surmised gold ore available to miners. 'Reserves' were taken to mean

those portions of total resources which have been delineated and are at present

regarded as economically extractable.

4.3.2 Witnesses provided details of their total ore resources, ore

reserves and grades of ore. Details are set out in Table 4.1.

TABLE 4.1 : RESOURCES AND RESERVES HELD BY MAJOR MINING COMPANIES

Resources Reserves

(Measured and indicated)

Quantity Grade a Gold content Quantity Grade3

Gold content

tonnes gm/tonne kg tonnes gm/tonne kg

Central Horseman 996,000 Up to 10.24 8,200 396,000 Up to 9.92 3,500

Kalgoorlie , Lake View 22,100,000 Up to 7.36 134,000 4,139,000 Up to 9.01 27,900 North Kalgurli 723,000 7.18 5,100 723,000 7.18 5,100

Hill 50 590,000 9.38 5,500 590,000 9.38 5,500

Spargo's Exploration 630,000 Up to 15.55 9 ,200C 101,500° Up to 10.5 1,000

Peko 122,500 51.13 6,300 122,500 51.13 6,300

Mount Morgan 4,000,000 1.66 6,700 3,500,000 1.7 6,000

Total 29,161,500 175,000 9,572,000 55,300

Notes: a Grades shown are average grades as provided by the companies, except where otherwise indicated. b Reserves are those developed for mining. Additional reserves on

balance of property amount to 9,990 kg of gold content, c Derived from estimated annual ore production and assessed life of mine. Source: Evidence.

18.

PRODUCTION OF GOLD

<1.3.3 The total gold content of the known deposits on leases held by the

•companies in Table 4.1 is about 175 tonnes, which compares with 1973-74 pro­

duction by these companies of about 13 tonnes. As a number of existing and

prospective producers did not submit evidence, total domestic resources may be

significantly higher.

4.3.4 The gold content of reserves is significantly lower, at about 55

tonnes. Apart from the recent addition to Central Norseman’s reserves , the

limited exploration programs undertaken by witnesses in recent years have

generally not delineated adequate additional reserves.

4.4 Operations and processes

4.4.1 The production of gold involves operations and processes which may

be conveniently grouped under ’exploration’, 'development', 'mining', and

'treatment'.

4.4.2 Exploration is a basic activity which must be undertaken to

replace resources exhausted by mining. Exploration may take place in locations

other than on existing mining leases in an attempt to discover new deposits,

or on the mining lease, where it consists of delineating the location, extent

and gold content of gold-bearing ores.

4.4.3 Development is more closely associated with the mining process.

It consists of preparatory work to expose and provide access to the orebody

to bring a mine to, and maintain, continuous production. The type of work

undertaken includes the provision of shafts, drives, crosscuts and working

faces.

4.4.4 Mining is the process of breaking and extracting gold-bearing ores.

The orebody exposed by development work is mined by various methods depending

on a number of factors such as the shape, size and character of the orebody, the

type of host rock and the depth at which the orebody is located. The mining

methods used vary from simple labour-intensive operations to highly mechanised

operations. Generally gold-bearing orebodies in Australia are not suited to

open cut operations. However, a small number of open cut mines exist, the most

significant of which is Mount Morgan.

19.

PRODUCTION OF GOLD

4.4.5 Treatment of gold-bearing ore to the final stage of refined gold

involves a nusfcer of sequential processes; crushing, grinding and flotation

to produce a concentrate; cyanidation and precipitation, which extract gold

from the concentrate by dissolving it out in a cyanide solution from which it

is subsequently precipitated by adding zinc; and smelting and refining. These

processes may be varied or augmented according to the characteristics of the

ore mined - for example, particles of free gold may be recovered by gravity

separation and amalgamation with mercury or concentrates may have to be

roasted where the gold is intimately associated with metallic sulphides. As

the gold content of ore is generally low, the gold mines endeavour to carry out

these processes as close to the mine site as possible to minimise transport

costs. The State batteries which treat ore on behalf of small producers use

a simple mercury amalgamation process. The amalgam is then subjected to heat

treatment to recover the gold.

4.4.6 Bullion produced by the mines or batteries contains a high pro­

portion of gold but requires further refining to produce gold of a purity of at

least 99.5 per cent (as required for official gold transactions). The

specialist refiners of gold use a number of chemical processes including treat­

ment with chlorine to remove the base metal content.

4.5 Production and capacity

4.5.1 Figure 4.1 shews the trend in Australian mine production of gold

since 1851. Mine production by State since 1945 is shown in Table 4.2. Pro­

duction declined from a peak of 94 tonnes in 1856 to 32 tonnes in 1886, after

which, with the discoveries and development of mining in the Eastern Goldfields

in Western Australia, production again increased. By 1903, production had

reached its highest recorded level of 119 tonnes. Since then the general trend

has been downward and although some reversals of this trend have occurred, by

1973 production had fallen to 19 tonnes.

20.

•FIGURE 4.1 : MINE PRODUCTION OF GOLD - AUSTRALIA, 1851 TO 1973

tonnes

1880 1890 1920 1930

Source: Based on annual production figures contained in Australian Mineral Industry: Production and Trade 1842-1964, BMR Bulletin No. 81 and Australian Mineral Industry Review 1968, 1971, 1972. BMR 1973 figures are preliminary.

PRODUCTION OF GOLD

TABLE 4.2 : MINE PRODUCTION OF GOLD : 1945 - 1973 (kilograms)

Qld N.S.W. Vic. Tas. S.A. W.A. N.T. Aust.

1945 1,966 1,341 1,922 406 9 14,574 224 20,442

1946 1,951 996 2,706 478 20 19,190 305 25,645

1947 2,248 1,558 2,635 468 20 21,894 343 29,165

1948 2,166 1,623 2,133 401 63 20,684 472 27,543

1949 2,373 1,611 2,128 378 63 20,169 926 27,653

1950 2,745 1,597 2,110 435 35 18,984 1,091 27,046

1951 2,444 1,521 2,055 449 11 20,163 1,211 27,855

1952 2,667 1,214 2,077 500 14 22,627 1,396 30,496

1953 2,858 823 1,988 528 14 25,601 1,631 33,443

1954 3,047 976 1,638 602 2 26,812 1,690 34,766

1955 2,001 935 1,183 525 2 25,951 2,033 32,630

1956 1,743 896 1,203 533 1 25,304 2,346 32,032

1957 1,971 966 1,423 623 1 26,431 2,301 33,715

1958 2,319 582 1,290 676 1 27,211 2,259 34,338

1959 2,852 413 1,078 664 - 26,780 1,964 33,751

1960 2,434 424 889 746 1 27,060 2,247 33,801

1961 2,015 3 74 816 836 2 27,081 2,353 33,477

1962 2,107 349 879 999 1 26,751 2,159 33,245

1963 2,133 354 767 1,133 - 24,972 2,489 31,850

1964 3,140 329 662 1,069 1 22,254 2,525 29,979

1965 2,394 300 599 1,023 - 20,415 2,567 27,298

1966 4,317 282 599 1,135 - 19,501 2,617 28,452

1967 2,974 333 342 1,167 - 17,846 2,387 25,049

1968 2,580 270 344 1,136 1 16,048 3,938 24,317

1969 2,237 329 266 1,252 12 13,720 4,016 21,831

1970 2,539 325 253 1,335 16 10,893 3,865 19,282

1971 2,824 305 122 1,793 17 10,734 5,124 20,918

1972 2,357 310 210 2,021 73 10,471 3,032 23,479

1973 1,444 297 100 1,511 70 8,587 6,980 18,989

Source; Australian Mineral Industry: Production and Trade 1842-1964; Mineral Industry Review 1968, 1971, 1972 B.M.R.; Data for year 1973 are preliminary figures.

Note: Amounts have been rounded.

4.5.2 Details of production over the last eight years by major producers

are set out in Table 4.3. The gradual decline which has occurred in total

Australian production is reflected in this table. Production by witnesses in

1973-74 accounted for almost 80 per cent of total Australian production. Pro­

duction of gold in association with other minerals has increased in recent

years. In some cases, the gold content of the ore mined is very low and gold

is produced merely as a by-product of other minerals. In other cases, such

as Mount Morgan, the contribution of income from gold production is very signi­

ficant and may be critical to the economic operation of the mine. The relative

22

PRODUCTION OF GOLD

significance of by-product gold may continue to increase in the future because

of the increasing cost and difficulty of discovering new gold deposits.

TABLE 4.3 : MINE PRODUCTION OF GOLD 1966-67 TO 1973-74 Kilograms of fine gold

Year ended 30 June

1967 1968 1969 1970 1971 1972 1973 1974

Central Norseman 2927 2705 2372 1849 1636 1528 1280 961

Lake View and Star3 Gold Mines of

4433 4546 3637 3165 2952 2768 2260

Kalgoorlie3 4865 4686 4539 4271 4005 4425 3849 -

Kalgoorlie Lake - - - - - - - 5040

View Peko^ 1034 2774 3393 2861 2808 6002 5466 4273

Mount Morgan 3211 2167 1941 1863 1621 1200 1661 2170

North Kalgurli 1985 2266 2282 1828 1495 1164 705 426

Hill 50 1300 1113 970 479 313 630 741 266

Other n.a. n.a. 3508 4245 4273 5536 4040 3608

Total Australia n.a. n.a. 22642 20561 19103 23253 20002 16744

Production by witnesses as % of total n.a. n.a. 83.5 79.3 77.6 76.2 79.8 78.8

W.A. Mines Department0

n.a. 326 307 264 305 403 449 253

Minerals and Mineral Products, ABS Ref. No. 10.19 for total Australia.

a Lake View and Star and Gold Mines of Kalgoorlie merged in June 1973 to form Kalgoorlie Lake View. b Includes gold produced in concentrate form. c Figures for calendar year and included for information only. Comprises

gold extracted from ore on account of small miners and gold recovered from tailings. n.a. - not available on a financial year basis.

Source : Company evidence for individual mines except LVS where the data are from company annual reports.

23

PRODUCTION OF GOLD

4.5.3 With the exception of Mount Morgan and Peko's Juno mine, the larger

mines are operating significantly below their capacity to process and extract

ore, partly as a result of a shortage of skilled mine labour and partly due

to the run-down condition of much of their plant and equipment. Kalgoorlie

Lake View said that its operations were hampered by limitations of plant and

equipment and shortage of qualified employees. Central Norseman said that

its major problem was shortage of labour. Neither Hill 50 nor North Kalgurli

are producing significant amounts of gold at present. North Kalgurli has no

gold ore treatment facilities, its existing plant having been converted for

the treatment of nickel ores from nearby nickel mines, and before new gold

treatment facilities could be justified the company would have to prove signi­

ficant new reserves; Hill 50 is currently proceeding with development work to

expose new gold ore and install new equipment and plant.

4.6 Costs of production and profitability

4.6.1 The Commission received cost information, on a confidential basis,

relating to the production of gold at both the current and the most economic

levels of output. Some information was also submitted on the extent of explor­

ation and development undertaken by various mining companies.

4.6.2 Production costs varied significantly between mines, reflecting,

in part, differences in the gold content of the ore mined and the difficulties

associated with mining that ore.

4.6.3 The high labour turnover experienced by all the mines, other than

Mount Morgan, involved them in additional costs associated with the training

of new employees and constraints on operating efficiency. The run-down

condition of much of the mine plant and equipment would also have led to some

increases in operating costs.

4.6.4 Costs at the most economic level of output were lower than those

at the current level in all cases, the differences ranging from about 5 to

about 30 per cent. For most companies, the most economic level was achieved at

or near capacity. Both Hill 50 and North Kalgurli are currently operating on

what is virtually a care and maintenance basis, at less than one-third of

capacity, and cost savings at the most economic level for these companies would

24.

PRODUCTION OF GOLD

be particularly high. For the other companies which gave evidence, production

increases of 5 to 30 per cent would be required to reach capacity operations.

For these companies, some reductions in direct costs were evident at the most

economic level but the largest cost reductions would occur in the area of plant,

overhead and administration.

Funds employed by major gold-mining companies represented at the

inquiry amounted to $28 million in 1973-74. Prior to 1972 the open market

price of gold was only sufficient to provide the mining companies, with the

exception of Peko, with marginal profits. A number of gold-mining companies

continued to incur losses in 1971 and Central Norseman and North Kalgurli

indicated that at that time decisions had been made by the company management

to phase out mining operations. Since 1972, primarily due to the rapid increase

in the open market price of gold, the profitability of gold-mining companies

has also increased but, with the exception of Peko and Mount Morgan, the return

on funds in 1974 earned by the major gold-mining companies was relatively low.

4.6.6 The extent to which profitability improved varied between mining

companies. Peko has earned high profits in recent years because of the high

grade of ore being mined. Mount Morgan, which jointly mines both copper and

gold, has also operated profitably, although the gold content of its ore is not

high. North Kalgurli and Hill 50 are not at present carrying out full scale

mining operations and, as such, are not operating profitably. Both these comp­

anies, as well as Kalgoorlie Lake View and Central Norseman, indicated that

substantial investments were required to maintain mining operations at profitable

levels in the future. '

4.7 Special problems associated with the industry cost-price squeeze

4.7.1 The W.A. Chamber of Mines and other witnesses submitted at the

inquiry that the gold-mining industry has been under considerable economic

pressure for the past 20 years, which has forced the industry into a progress­

ive and long term decline. The witnesses attributed the major cause of this

decline to the cost-price squeeze arising from the static price of gold and

increasing costs. While the static price has been related to the monetary role

of gold, the pressure on costs has been due not only to the increasing cost of

labour and materials but also to declining ore grades which have resulted in

more ore having to be mined per unit of gold produced.

25.

PRODUCTION OF GOLD

4.7.2 The industry’s inability to maintain adequate investment in

exploration, development, plant and equipment in the face of a cost-price

squeeze has exacerbated the situation. The W.A. Department of Mines submitted

statistics of exploration and development work undertaken by the principal gold

mines in Western Australia for certain years since 1945. These are set out in

Table 4.4.

TABLE 4.4 : EXPLORATION AND DEVELOPMENT REPORTED BY THE PRINCIPAL GOLD MINES IN W.A. (metres)

Shaft sinking

Driving and crosscutting

Rising and winzing

Total underground development

Exploratory diamond drilling

1945 248 16,917 4,966 22,131 15,903

1946 394 24,186 9,540 34,120 33,849

1950 867 18,811 7,057 26,735 38,221

1954 714 27,670 8,043 36,427 66,512

1958 1,184 27,952 7,380 36,516 44,741

1962 531 32,142 7,698 40,371 48,388

1966 297 23,994 6,117 30,408 48,868

1970 28 6,484 1,914 8,426 18,858

1972 187 4,691 1,305 6,183 14,871

1973 199 7,306 1,782 9,287 26,888

Source : Evidence

The table shows that the extent of both exploration and development undertaken

during 1972 by the principal gold mines in Western Australia was at a signi­

ficantly lower level than in the years before 1966. Total exploration in

terms of exploratory diamond drilling declined by almost 80 per cent, from

66,512 metres in 1954 to 14,871 metres in 1972. The decline in development,

commencing some years later, was more rapid, from 40,371 metres in 1962 to 6,183

metres in 1972, a reduction of about 85 per cent. The decrease in exploration

and development expenditure has resulted in further declines in ore grades and

less restricted access to potentially profitable orebodies, while, in the case

of investment in plant and equipment, inadequate expenditure has meant that modern

technology which would have assisted in containing cost increases could not be

incorporated.

26

PRODUCTION OF GOLD

The witnesses, particularly those operating mines in Western

said that substantial investment is necessary to repair the damage

caused to the mines by years of neglected mine development and inadequate

maintenance of plant and equipment, and to bring the mines to capacity levels

of production. The amount these witnesses considered necessary is about $28

million; expenditure on housing, plant, equipment and other capital items

would comprise the major proportion of this total.

^•7.A The gradual decline of the gold-mining industry also affected the

industry’s ability to match the wage levels and the standard of employee hous­

ing offered by other mining industries. As a result, there has been some trans­

fer of labour to other mining areas, notably the new nickel mines which were

capable of offering more attractive wages and better conditions, especially in

the form of housing.

4.7.5 While the recent increases in the price of gold have had some

effect in easing the cost-price squeeze, there will be some period of time

before sufficient funds can be generated in order to finance the necessary

expenditures which must be undertaken to ensure the viability of some of the

large mines.

4.7.6 Labour shortages

The gold mines supported their claims for assistance partly by

pointing to the importance of gold mining in the employment of people in iso­

lated areas. In Kalgoorlie, where service industries, the new nickel mines and

continuing exploration provide other avenues of employment, the W.A. Chamber

of Mines estimated that cessation of gold-mining activities may lead to a

reduction of the town’s population of 23,000 to about 16,000 people.

4.7.7 Over 45 per cent of Australian gold production at present comes

from Western Australia and most of that from the Kalgoorlie field. According

to the W.A. Chamber of Mines, over 2,000 people are directly engaged in gold­

mining activities in Western Australia. The mines in Kalgoorlie owned by

Kalgoorlie Lake View currently employ about 1,300 people but are producing

well below capacity, in part due to their inability to obtain labour. The

W A. Chamber of Mines said in evidence that over 2,000 additional persons

could be employed in the Eastern Goldfields in the next few years by the

nickel and gold-mining industries.

4.7.3

Australia,

27.

PRODUCTION OF GOLD

4.7.8 Most of the mining companies which gave evidence stated that it

was becoming increasingly difficult to attract labour to isolated mining towns

with limited facilities. The difficulty in attracting labour led the gold

mines to establish a joint recruiting organisation through the W.A. Chamber of

Mines, but this has not been successful in meeting the labour requirements of

the mines. Table 4.5 below suggests that the industry as a whole is operating

with about 75 per cent of its capacity workforce and that an additional 800

miners are required immediately for capacity operations.

TABLE 4.5 : GOLD MINING EMPLOYMENT TURNOVER, LENGTH OF SERVICE, CAPACITY REQUIREMENTS, 1973-74

Company

Labour turnover

Percentage with over 5 years service Percentage

of capacity

Additional employees for capacity

% % % No.

Mount Morgan 32 51 100 0

Other 3 143.5 25 69 794

Total 121 30 76 794

a Includes Kalgoorlie Lake View, Central Norseman, North Kalgurli, Hill 50.

Source : Evidence.

4.7.9 Table 4.5 shows that the average labour turnover for gold mines

was about 120 per cent in 1973-74 and that less than one-third of employees

stay longer than five years. Mount Morgan is an exception to this pattern

although it has experienced a high turnover of unskilled labour. Factors

behind the relative stability of Mount Morgan's skilled employment include the

advantageous location of the town in a high rainfall area within 30 miles of

of Rockhampton and the coast, the lack of employment alternatives and the

long-established facilities in the town itself. The mine also benefits from

the less onerous working conditions typical of open cut mining. Witnesses

stated that the high labour turnover experienced by the mines has significant­

ly increased training and operational costs to the industry and led to addit­

ional recruitment expenditures.

28.

PRODUCTION OF GOLD

4.7.10 Witnesses stated in evidence that wages paid by the gold mines

have been less than those paid by other mines and this factor may have

contributed to the industry’s difficulties in attracting and holding skilled

mining labour. Prior to the March 1975 Nickel Wage Agreement, the award wage

rates in both the gold and nickel-mining industries were approximately the

same. However, a significant proportion of mining employees in both industries

are paid by piece rates. Information available to the Commission suggests

that average weekly earnings on this basis in the nickel-mining industry may be

somewhat above those in the gold-mining industry.

4.7.11 The industry stated that the gold mines have continued to have

difficulty in attracting labour despite the prevailing high general level of

unemployment. Continuation of the labour shortage threatens to restrict the

ability of the gold mines to develop existing and new fields and take advantage

of the prevailing high gold price. The W.A. Chamber of Mines also stated that

it believed suitable underground miners may be obtained from overseas countries,

particularly Italy, Yugoslavia and Greece.

4.7.12 Housing

One major factor preventing the gold-mining companies attracting

sufficient labour is the lack of adequate housing. The problem of housing

which is faced by the industry arises from the same cause as the shortfall in

exploration and development and has serious implications for the industry's

ability to attract labour.

4^7^13 xhe isolated location of the gold fields has historically meant

establishment of towns to house mine employees and service their needs.

Development of these towns has, in most cases, taken place over a long period

of time and has been financed partly by the mining companies and partly by

State and local government authorities. The Coimnission was unable to quantify

the extent of government assistance and subsidisation of infrastructure, but the

level of such assistance is not believed to be great. Generally, the mines

provide low-rental houses and single quarters; in some cases, the mines

also provide the town power and water supply and other services and benefits.

A number of witnesses, including the W.A. Chamber of lines, referred to the

29.

PRODUCTION OF GOLD

importance of the provision of satisfactory housing as an inducement to pro­

spective employees in mining towns. Witnesses considered they were at a dis­

advantage against the nickel mines, which, being relatively recent developments,

are able to offer comparatively new housing as an employment inducement. The

W.A. Chamber of Mines stated that over $20 million was spent on the provision

of new housing for the Kambalda nickel mine alone.

4.7.14 The W.A. Chamber of Mines estimated that over 300 new houses are

needed in Kalgoorlie for the gold-mining industry. Although the State Housing

Commission plans to build some 300 houses, the allocation is by waiting list

and subject to means test, and the gold mines are unable to offer these houses

directly as an inducement to prospective employees. Central Norseman con­

sidered that the standard of its housing has been a disadvantage in recruiting

and retaining labour and the company recently built 23 new transportable houses.

Central Norseman has, at present, postponed plans for the provision of additional

new housing pending further investigation of its leases. Western Mining has

recently raised loans at commercial rates of interest to finance the construc­

tion of new housing. Other mines also plan the construction of new employee

housing and a number of requests for government loan assistance for housing were

received at the inquiry.

4.7.15 The small prospector

The Commission-experienced some difficulty in determining the

number of small prospectors currently engaged in searching for gold in

Australia, mainly as a result of the wide range of people who undertake pros­

pecting. 'Prospectors' can include mine employees and other employed people

who prospect on a part-time basis, some prospectors working full-time and

supported by the sale of leases on favourable prospects and some prospectors

who mine small amounts of gold on an intermittent basis. Additionally,

some small producers may also undertake prospecting on a part-time basis.

4.7.16 Membership of the Amalgamated Prospectors and Leaseholders'

Association of W.A. (Inc) (APLA) is around 1,000 but this figure includes a

large number of part-time prospectors and prospectors for minerals other

than gold. APLA estimated that there were about 100 full-time gold pros­

pectors in the Eastern Goldfields area and about 30 in the Murchison Gold­

field. The Commission received replies to its questionnaire from a total of

20 prospectors and small producers showing that the income earned from the

30

PRODUCTION OF GOLD

sale of gold-mining leases has been very small. The mining companies which

gave evidence stated that only two gold-mining leases have been purchased by

them from prospectors since 1964 for a total consideration of $1,500. Options

were also taken to purchase from prospectors a further four gold-mining leases

for a total of $5,900 with a further payment of $54,600 if the options are

exercised. A number of gold-mining leases have also been purchased from eight

small producers. On the basis of this evidence, very few prospectors could

exist solely on their earnings from the sale of gold-mining leases or favourable

prospects.

4.7.17 A number of witnesses were of the opinion that the small pros­

pector still has an important role to play. APLA noted that the prospector s

flexibility, mobility and lack of overheads enabled him to cover wide tracts

of land, the exploration of which major companies could not justify in the

absence of promising indications of mineralisation. The VI.A. Chamber of

Mines stated that the prospector will always be an integral part of prospect­

ing for gold and is an essential and continuing aid to the discovery of

minerals of all types. The W.A. Department of Mines considered that the

prospector could still be important in exploratory work, both through his

intimate knowledge of particular areas and as a valuable field assistant to

professional geologists·

4.7.13 Nevertheless, several witnesses said that the importance of

the prospector is declining. The W.A. Chamber of Mines and the W.A.

Department of Mines said that the main reason for this was the gradual

exhaustion of surface indication of mineralised areas. Consequently, they

said, more sophisticated equipment and techniques must be used to e. p

for minerals located at depth. APLA admitted that there had been no major

discoveries of gold by prospectors in the past ten years, the rich disco e

which have been made being too small to support major mining operations. Recent

major discoveries by prospectors have in fact been of minerals other than gold,

although this may merely reflect the relatively more intensive exploration

effort directed towards these other minerals.

4.7.19

to refer to

prospector’

In this report the Commission interprets the term prospecting

an activity encompassing the search for minerals. A foold

is one who engages in this activity principally to discove 8

31.

PRODUCTION OF GOLD

and who sells his right to mine any discovery. Consequently, those pros­

pectors who undertake production from their finds are regarded as being

producers. The tax treatment of all forms of mineral production makes no

distinction between small and large producers. The Commission can see no

justification for singling out small producers of gold for preferred treat­

ment over small producers of other minerals or over large producers of gold

or other minerals. Similarly, the Commission believes that prospectors for

gold (whose income arises from sale of rights to mine their gold discoveries)

should be taxed on the same basis as prospectors for other minerals.

4.7.20 As prospecting is not confined solely to the search for gold,

and as the Commission can see no reason why prospecting for gold should be

distinguished from prospecting for minerals in general, any question of

assistance to the small gold prospector would more appropriately be consid­

ered by the current inquiry into the Petroleum and Mining Industries.

32

PRODUCTION OF GOLD

5. ASSISTANCE PROVIDED TO THE INDUSTRY

5.1 Current assistance

5.1.1 Current Australian Government assistance which Is specifically

directed to the Australian gold-mining industry comprises subsidy assist­

ance under the GoZd.-I4im.ng Industry Assistanae Act 1954-1972 and concessions

on income tax payable by companies engaged in gold mining.

5.2 Gold-Mining Industry Assistance Act 1954-1972

5.2.1 This Act was originally introduced in 1954 and provided for

assistance to the gold-mining industry over the period 1954-55 to 1955-56.

The subsidy was intended to compensate producers for rising costs of

production and a gold price which had not changed since September 1949.

The Government at the time justified the subsidy on the grounds of the im­

portance of the industry, its contribution to the balance of payments and

because the existence of various isolated communities depended upon the gold­

mining industry.

5e2.2 The Act has been extended and amended on several occasions since

that time. The latest amendment was enacted in 1972 and provided for extension

of the scheme to 30 June 1975. The main provisions of the current Act are as

follows :

. To be eligible for assistance, a producer's output of gold must be greater than 50 per cent of the total value of his mining output.

. Producers are designated as either small producers or large producers. A producer with annual gold output of 500 ounces or less is designated as a small producer and receives, upon application, a maximum subsidy of

$6 per ounce of gold delivered to the reserve BanL. Where the selling price exceeds $31.25 the amount of the subsidy falls by one-half of the difference between the selling price and the price of 531.25 per ounce, provided the official price does not exceed $31.25. If

the official price of gold exceeds $31.25 the subsidy is reduced by the full amount of the difference between the selling price and $31.25.

1— The 'selling price' is the price received from sales by the Gold Producers Association on behalf of the producers.

33.

PRODUCTION OF GOLD

. Large producers may elect to be classified as small producers but the subsidy is reduced by $0.01 for each ounce by which deliveries of gold exceed 500 ounces per year so that the subsidy cuts out at annual deliveries of 1,100 ounces.

. Large producers who do not elect to be classified as small producers may receive a subsidy, the maximum value of which is $12 per ounce. The sub­ sidy is payable only where production costs exceed

$27 per ounce of fine gold and is calculated as 75 per cent of production costs in excess of $27 per ounce up to a maximum subsidy of $12 per ounce. Production costs include the costs of mining and producing the bullion, the cost of producing the

refined gold from the bullion, development costs incurred in the year of production and 50 per cent of the net cost, in the year of production, of approved diamond drilling carried out by the producers elsewhere than on the mining property. Where the selling price exceeds $31.25, the sub­ sidy is reduced in the same manner as for small producers.

5.3 Income tax concessions available to the industry

5.3.1 Income tax concessions to the gold-mining industry were first

introduced in 1924 and were to apply for a five-year period. A number of

reasons were advanced to justify the concessions including the need to assist

the industry through a difficult period caused by an embargo on exports and

the price regulation of gold. These concessions were extended after the five-

year period because of the continuation of the industry's problems.

5.3.2 The following sections of the Inaome Tax Assessment Act 1936-1974

relate specifically to gold.

Section 23(o) All income derived from a mining operation directed princi­ pally to obtaining gold, or gold and copper, is exempt from income tax. Where both gold and copper are produced the value of the gold must not be less than 40 per cent of the total value of output of the property, excluding the value of pyrites.

34

PRODUCTION OF GOLD

Section 23C (1) Income derived by a company from the sale of gold is exempt from income tax provided that the shareholders of the company engaged wholly or partly in the production of gold, the gold sold is purchased from the Reserve Bank and the company is approved by the Treasurer for the purposes of Section 23C. This provision exempts

from taxation the income of the GPA.

Section 23C (2) Dividends paid to shareholders by companies exempted from income tax under Section 23C (1) are also exempt from income tax provided that the shareholder is a gold producer as

defined by Section 23(o). This provision exempts from taxation, dividends paid by the GPA to its shareholders.

5.3.3 Three other taxation provisions which also applied to gold were

repealed in August, 1973.

Section 23 (p) Exempted from tax the income derived by a bona fide prospector from the sale, transfer or assignment of his rights to mine a particular area for gold. The term 'bona fide prospector' includes a person(s) or a company which carried out the major part of the

field work of prospecting and persons who have con­ tributed to the expenditure incurred in prospecting a particular area.

Section 44(2) (a) (i) Exempted from tax dividends paid to shareholders by a company whose income was exempt from tax under Section 23(p) .

Section 44(2)(c) Exempted from tax dividends paid to shareholders by a company whose income was exempt under' Section 23(o).

5.4 Other assistance to the gold-mining industry

5.4.1 The gold-mining industry also benefits from sales tax exemptions

on mining machinery and equipment. These exemptions are available to all min­

ing industries under the Sales Tax (Exemptions and Classifications) Act 1335­

1967.

5.4.2 Assistance is also provided in a variety of forms by State

Governments. The W.A. Department of Mines operates 15 batteries in many areas

of the State. These batteries, which specialise in the treatment of gold ores

35.

PRODUCTION OF GOLD

for small producers (but which also can be used to treat some other ores),

effectively provide a subsidy by operating at a substantial loss. In 1972-73,

this operating loss was $729,000 and represented a subsidy of about $1,600 per

kilogram of gold produced. Although crushing charges for gold ore were increased

in 1974, for the first time since 1898, the increases were insufficient to cover

current operating costs.

5.4.3 The W.A. Department of Mines also provides a cartage subsidy up

to a maximum of $2.50 per tonne of ore as an aid to prospecting, and to assist

in the proving and initial development of mining tenements. Only newly won ore

qualifies for the subsidy and the amount of subsidy paid depends on distance

carted and the grade of the ore. After the first 400 tonnes, only ore yielding

in excess of 6 gm/tonne qualifies for the subsidy. The Western Australian

Government also grants, to a number of prospectors working in remote areas of

the State, assistance which, in 1974, amounted to about $35 per week.

5.4.4 Assistance is also provided by other State Governments and the

Department of the Northern Territory to prospectors and producers by way of

low interest loans, concessional hire charges on equipment and subsidised pro­

cessing facilities. However, no details of the extent of such assistance were

received. The Commission was also unable to quantify the extent of indirect

assistance (for example, roads, housing and water supply) provided by the

Australian and State Governments in areas adjacent to mines and mining settle­

ments .

5.4.5 The following tariff items and rates of duty apply to imports of

gold in the forms covered by the reference:

(a) Gold ore

- 26.01.900 - Free General, Free Preferential

(b) Gold amalgam

- 28.49.900 - 6 per cent General, Free Preferential

(c) Gold Bullion

(assaying not less than 37.5 per cent of fine gold)

- 71.07.200 - Free General, Free Preferential

36.

PRODUCTION OF GOLD

(d) Gold Bullion

(assaying less than 37.5 per cent of fine gold)

- 71.07.900 - 26 per cent and4-*8c/kg - General

- 19 per cent - Preferential

Details of these items are shown in Appendix 4. The Commission received no

evidence that these duties provided any assistance to the gold-mining industry

and no requests were made for the retention of the duties.

5.5 Comparison with assistance measures in Canada and South Africa

5.5.1 Disadvantages faced by the gold-mining industry of each country,

as a result of the fixed price of gold, led to the introduction of schemes of

direct financial assistance in Australia, Canada and South Africa. In Canada

and Australia, where gold deposits are often located in remote regions, there

have also been social pressures to support mines upon which existing isolated

communities are economically dependent.

5.5.2 Both the Canadian and Australian subsidy schemes are based on costs

of production and the price received for gold. However, the Canadian scheme is

more closely related to its expressed intention of supporting existing isolated

communities. Only those lode mines already in existence at 30 June, 1965 or

new mines, which provide direct economic support for existing communities, are

eligible for assistance. The Canadian scheme restricts assistance for new mines

to those with reasonable prospects of becoming commercially viable. As a result

of recent rises in the price of gold, the subsidy schemes of both Canada and

Australia have been effectively inoperative since 1972-73.

5.5*3 Assistance under the South African scheme has been directed

towards marginal mines, the output of which may be appreciably prolonged and

production significantly increased with the aid of government assistance.

Mines eligible for assistance were required to effectively reduce the grade

of ore mined by a specified amount to conserve higher grade ore. Since the

recent rises in the gold price, assisted mines have been required to resume

normal mining practice so as to return as soon as possible to a position where

they no longer receive assistance.

37.

PRODUCTION OF GOLD

5.5.4 Of these three countries only Australia totally exempts gold-mining

Income from taxation. In Canada, gold mines are subject to the same taxation

provisions as other mining ventures, Including Immediate 'write off* of all ex­

ploration, development and initial capital expenditure and a depletion allowance

up to a maximum of 25 per cent of mining profits. Taxation of gold mines under

the South African system is related to profitability. Low-profit mines are ex­

empt from tax while highly profitable mines are taxed at rates in excess of the

normal rate of company tax.

5.5.5 South Africa's treatment of its gold-mining industry should be

considered as a special case with limited relevance to other producing

countries because of the vital role which the industry plays in the South

African economy.

5,6 Evaluation of existing assistance measures in Australia

5.6.1 At the inquiry, the W.A. Chamber of Mines expressed the view that

the Gold-Mining Industry Assistance Act no longer had any relevance to the

industry. No significant payments have been made under the Act since 1972-73

as the open market price of gold has since exceeded the level at which the sub­

sidy cuts out. Unless recent trends in world monetary policy are reversed, it

is unlikely that the price of gold will again be subject to control and it

appears, therefore, that the Act is no longer required.

5.6.2 Taxation concessions currently provide the major form of Australian

Government assistance available to the industry. No other Australian industry

benefits from a complete exemption of its income from taxation. The level of

assistance provided by these concessions varies directly with profitability

and declines as economic conditions in the industry become unfavourable.

5.6.3 Table 5.1 illustrates the impact of the tax exemptions on companies

with widely different levels of profitability.

38.

PRODUCTION OF GOLD

TABLE 5.1 : ASSISTANCE PROVIDED BY INCOME TAX EXEMPTIONS

Item Company 1971-72 1972-73 1973-74

Value of tax exemption® Pekc}3 2,998 6,257 5,177

($'000) Central Norseman 84 190 125

North Kalgurli 0 0 0

Gold production Peko 5,603 5,029 2,982

(kg) Central Norseman 1,528 1,280 961

North Kalgurli 1,164 705 426

Value of tax ex- Peko 535 1,244 1,736

emption per Kg of Central Norseman 55 148 130

gold ($ per Kg) North Kalgurli 0 0 0

a Estimated amount < of additional income tax which would have been payable in the absence of exemptions allowed under sections 23(o) , 23(p), 23C and 44 of the Income Tax Assessment Act, after deducting from gross income from gold, expenses incurred in gaining that income and Division 10 capital expenditures deducted over the life of the mine or

plant. The tax rate applied to the estimates of taxable income was 47.5 per cent.

b Data for Peko relates to both the Juno and Orlando mines. However, the Orlando mine ceased to be classified as a gold mine under the Income Tax Assessment Act as from 22 August, 1973.

Source : Evidence.

The assistance received by Peko, which has enjoyed significantly

higher profits than other Australian gold producers ,, increased from $535 per

kilogram in 1971-72 to $1,736 per kilogram in 1973-74. The assistance received

over the same period by Central Norseman, which has earned moderate profits,

increased from $55 per kilogram to $130 per kilogram. North Kalgurli, which

has suffered heavy losses in recent years, has received no assistance from

tax exemptions during that period.

5.7 The effects of subsidy assistance on Australian production

5.7.1 Table 5.2 shows the annual subsidy payments since 1955 to gold

producers in Australia and Papua New Guinea. The Table shows the decline in

subsidy payments since 1971-72.

39.

PRODUCTION OF GOLD

5.7.2 Witnesses stated that, in the absence of subsidy payments, gold

production would have significantly declined and many mines would have ceased

operations. Gold Mines of Kalgoorlie stated that it was difficult to see how

it could have survived the 1950s without subsidy assistance. North Lalgurli,

Hill 50 and Lake View and Star would all have incurred heavy losses in the mid-

1960s and would have been faced with the decision to suspend operations.

Central Norseman, which did not qualify for subsidy assistance until 1969, stated

that the subsidy did no more than keep the company in existence. These five

mines produced 62 per cent of Australia’s mine production of gold in 1967-68, 45

per cent in 1971-72 and 40 per cent in 1973-74. In the period 1966-67 to 1971-72,

these companies have received more than 60 per cent of the annual subsidy

payments. 0.f the other major companies giving evidence, only Peko was able to

operate profitably without obtaining subsidy assistance in any year. Mount

Morgan did not qualify as a gold mine under the terms of the Act.

5.7.3 There is little doubt that the subsidy scheme has enabled many

producers to extend the life of their mines, although the Commission is unable

to quantify the additional gold production involved.

TABLE 5 .2 : MET SUBSIDY PAYMENTS TO GOLD PRODUCERS : 1955 TO 1973-74

Papua

Australia New Guinea Total

1955 460,680 13,212 473,892

1956 1,064,364 127,958 1,192,322

1957 1,155,502 21,522 1,177,024

1958 1,418,086 89,070 1,507,156

1959 1,472,092 104,898 1,576,990

i960 1,498,612 130,584 1,629,196

1961 1,309,484 89,516 1,399,000

1962 1,351,394 145,624 1,497,018

1963 1,432,600 85,792 1,518,392

1964 1,165,562 95,978 1,261,540

1965 1,806,100 68,765 1,874,365

1966 3,647,185 111,565 3,758,750

1967 3,780,854 77,573 3,858,427

1968 2,751,764 65,687 2,817,451

1968-69 n, a. n. a. 1,810,000

1969-70 n,a. n. a. 1,859,000

1970-71 n.a* n.a. 2,881,000

1971-72 n. a. n. a. 1,852,000

1972-73 n.a. n.a. 295,000

1973-74 n, a. n.a. 16,000

n.a. : not available. Source : Non--Rural Primary Industries. ABS. Ref. 10.23 for 1955 to 1968 and Minerals and Mineral Products, ABS, Ref. 10.19 for 1968-69 to 1973-74

40.

PRODUCTION OF GOLD

5.8 The effects of taxation concessions on Australian production

5.8.1 The taxation concessions available to Australian gold producers

have had less effect on production than the subsidy scheme. The taxation

exemptions provide little or no assistance to unprofitable mines and so

would have had limited effect on decisions to close those mines. On the

other hand, production of profitable mines may have been stimulated and

some marginally profitable producers may have extended the operating

lives of their mines in anticipation of higher gold prices, increased

profits and increased assistance through the taxation exemptions.

5.8.2 Central Norseman, Mount Morgan and Peko claimed that their com­

panies have received effective assistance from the taxation concessions.

Central Norseman, which enjoyed moderate profits through the 1960s, stated

that the resulting tax exemptions were effective in maintaining net profits

above the level at which a decision to close operations might have been made.

Mount Morgan claimed that the tax exemptions enabled exploration work to be

undertaken in the last ten years, which had resulted in the discovery of 6

million tonnes of gold-bearing ore. This extended the life of the mine by

approximately five years; it might otherwise have closed down in the early

1970s. Peko stated that the funds generated by the tax exemptions have en­

abled it to consolidate its operations in the region and assisted the develop­

ment of base metal orebodies (copper or copper-bismuth) which yield gold as a

by-product. However, the tax exemptions have not had a significant effect on

Peko's gold production. Most of Peko's gold output is obtained from its Juno

mine which contains high-grade, easily accessible ore which could be extracted

profitably without government assistance. ,

5.8.3 Producers were requested to supply their own estimates of the value

of the tax concessions over the last 10 years. These estimates are presented

in Table 5.3. They should be treated with some caution since the basis of

estimation used by the companies may not be consistent. Furthermore, the

estimates are incomplete since some companies did not give evidence (e.g. Golden

Plateau N.L. and Australian Development Ltd.), other companies have ceased

operations (e.g. Great Boulder Gold Mines Ltd.) and some other smaller com­

panies were not asked to supply the information. The table shows that, of the

major companies surveyed, Peko and Mount Morgan accounted for most of the tax­

ation concessions received. The companies which supplied estimates of the

value of the tax concessions accounted for between one-half and two-thirds 41.

PRODUCTION OF COLD

of total Australian gold production over the ten years to 1972. Much of the

remaining production was obtained as a by-product of other mining ventures

and was not eligible for tax exemptions or was produced by companies, such as

Lake View and Star, which received minimal assistance from the concessions

due to poor profitability over the period.

TABLE 5.3 : ASSISTANCE PROVIDED TO MAJOR COMPANIES GIVING EVIDENCE BY MEANS OF INCOME TAX CONCESSIONSa

Peko

Mount Morgan Other b Total

$’000 - $'000 $'000 $'000

1964-65 39 562 946 1,547

1965-66 27 761 900 1,688

1966-67 16 1,229 342 1,587

1967-68 765 422 178 1,365

1968-69 1,580 791 308 2,679

1969-70 1,961 1,559 89 3,609

1970-71 1,532 0 0 1,532

1971-72 2,998 362 85 3,445

1972-73 6,257 1,036 191 7,484

1973-74 5,177 3,363 230 8,770

a Tlie estimates, submitted as evidence by witnesses to the inquiry, are based on tax exemptions available under Sections 23(o), 23(p), 23C and 44 of the Income Tax Assessment Act.

b Includes assistance to Hill 50, North Kalgurli, Central Norseman and Gold Mines of Kalgoorlie.

Source : Evidence.

5.8.4 Comparison of Tables 5.2 and 5.3 shows that the value of the tax­

ation concessions has greatly exceeded the value of subsidy payments over the

last six years, particularly in 1972-73 and 1973-74, when high gold prices

resulted in a large increase in taxation concessions to profitable mines

and the cessation of significant subsidy payments.

5.3.5 For some companies, the level of assistance provided by the tax

concessions has been substantially increased with increases in the price of

gold and the consequent improvement in profit levels. In 1972-73 when the

price of gold was $1,378 per kilogram ($58.40 per ounce), the tax concessions

amounted to about $640 per kilogram ($20 per ounce). By 1974 the cost of these

concessions was considerably higher. Some witnesses stated that the price of

gold will continue to increase with inflation and, if these expectations

42.

are

PRODUCTION OF GOLD

achieved, by 1980 the price could reach between $6,430 per kilogram and

$9,645 per kilogram ($200 to $300 per ounce). At these prices, the level

of assistance provided by the tax concessions could exceed $40 million per

annum.

5.8.6 The above examination of the effects of existing taxation

concessions was based on those companies which gave evidence of the value

of their taxation concessions. The estimates provided by witnesses in Table

5.3 may have been made on a different basis to those of the Commissioner of

Taxation who estimated the loss of taxation revenue to be almost $15 million

in 1972-73.

43.

PRODUCTION OF GOLD

6. CONCLUSIONS

6.1 The Industry, In support of its requests for assistance, claim­

ed that it had been adversely affected by the artificially low price for

gold, which had been maintained for monetary reasons over many years. It

argued that assistance was necessary to provide finance to rehabilitate mines

and to enable the industry to take advantage of the present high price for

gold. Failure to assist the industry would, it was claimed, lead to the clos­

ure of some gold mines with adverse effects on associated mining townships.

It was also argued that continued local production of gold should be assisted

because of gold's special role.as an international means of exchange.

6.2 The industry's main request was the retention of the present tax­

ation concessions which provide for exemption from taxation of income from gold

mining. The industry's other main request was for long term low interest loans

to finance new housing, the renovation of existing housing and re-equipment and

rehabilitation of plant and equipment.

6.3 The domestic gold producers who submitted evidence account for

a major proportion of total Australian mine production of gold and, in the

Commission's view, are generally representative of the whole industry. Their

evidence, and that of other witnesses, indicates that, until recently, the

industry's situation had steadily deteriorated since the early 1950s. The

decline in the industry was particularly severe in the period 1966 to 1972.

Since 1972, the rapid increase in the free market price of gold has signific­

antly improved the industry's prospects.

6.4 A number of factors were responsible for the industry's decline,

the most important of which was the pressure placed on profitability by in­

creasing costs in a period of fixed gold prices. This squeeze on profits

made it impossible for most mines to undertake the levels of expenditure on

exploration, development, plant maintenance and new equipment essential to

maintain efficient operations and to provide for the continued viability of

the industry.

44.

PRODUCTION OF GOLD

6.5 The deterioration in the industry is reflected in the continued

and substantial fall in the quantity and grade of ore mined and the level of

production of gold over recent years. The extent of exploration and develop­

ment undertaken, as well as the reserves of gold-bearing ore available for

mining, also declined. If the industry is to ensure its viability, it will

have to undertake major investments in the areas of exploration, development,

and rehabilitation and replacement of plant, equipment and housing.

6.6 The industry has also been faced in recent years with increasing

difficulties in maintaining an adequate workforce. This appears to have been

partly due to the commencement of new mining operations offering better stand­

ards of housing and to a shortage of suitable underground mining labour. The

high turnover of labour experienced by the industry and the high cost of train­

ing new miners has added signficantly to costs.

6.7 The current high prices for gold have significantly improved the

industry's prospects. The Commission believes that long term changes in the

price of gold will be related to world inflation rates, although there may be

substantial short term fluctuations. On the basis of the industry's price

prospects and the cost data provided by producers, the Commission is of the

opinion that, after the necessary rehabilitation and re-equipment of mines,

most producers would be able to achieve an adequate return on funds without

any assistance.

6.8 The industry's ability to operate profitably may, however, be

limited by its shortage of labour. The industry may need to make substan­

tial investments in housing for mine employees, and possibly to offer higher

wages. However, the apparent shortage of skilled underground miners has not

eased during the recent period of high unemployment. The Commission has been

advised that the W.A. Chamber of Mines has recently discussed the shortage of

labour with the Government and that some overseas recruitment has been authorised.

45

PRODUCTION OF GOLD

6.9 The Gold-Mining Industry Assistance Act, which was designed to

provide assistance to gold miners when the price of gold was artificially

depressed, has not been operative in recent years and, unless there is a major

reversal of world monetary policy, it is unlikely that the price of gold will

again be subject to the artificial constraints which were applied in the past.

Consequently, the need for direct financial assistance to compensate producers

for artificially depressed prices appears to have been removed. Accordingly,

it is recommended that the provisions of the Act should be allowed to lapse.

6.10 The most important form of assistance to the gold-mining industry

has, in recent years, been the income tax concessions. These particular con­

cessions are unique to the gold-mining industry. In the Commission's opinion,

these concessions are inappropriate and their continuation cannot be justified.

Assistance provided by way of income tax concessions is only of benefit to a

company which makes a profit, and the larger that profit, the greater is the value

of the tax concession. The large increase in the price of gold which has occurr­

ed in recent years has greatly increased the cost of these concessions in terms

of revenue forgone. Furthermore, the major proportion of this benefit accrued

to those companies which were least in need of assistance. Continuation of

these concessions may involve even higher costs in the future. Moreover, as

these concessions are not available to other forms of mining, the additional

assistance available to gold-mining must eventually result in a misallocation

of resources within the mining sector. For these reasons, and because the

artificial restraints on the price of gold no longer apply, the Commission

considers that these concessions should be withdrawn.

6.11 Although the Commission believes that the exemption of gold­

mining income from taxation should be abolished, it is aware that some companies

in the industry face heavy short term expenditures to rehabilitate their mines,

and to provide additional housing for employees. To assist these producers

to finance these investments and in order to enable gold miners to adjust to

the proposed new taxation arrangements, the Commission recommends that the concess­

ions be phased out over a five-year period. Under the Commission's recommend­

ations , by July 1980 gold miners would be taxed on the same basis as other producers

of minerals. Any estimate of the cost of assistance provided to the industry by

phasing out the tax exemptions must be speculative because of uncertainty as to

future movements of the gold price and of production costs. However it is

46

PRODUCTION OF GOLD

believed that the recommended phasing out provisions could cost between $60

million and $130 million in revenue forgone (between $50 million and $110

million discounting at 9.5 per cent). In arriving at its recommendations

the Commission has assumed that the phasing out of taxation provisions will

also apply to the Gold Producers' Association, that the normal taxation

provisions would apply to distributions by the Gold Producers' Association

to its members and that gold producers will be allowed to carry forward the

balance of unrecovered losses and unrecouped capital expenditures, arising

from their gold-mining activities, in recent years.

6.12 It is being recommended that, at any time in the interim period

to July 1980, a gold miner may elect to be treated as a general miner. Thus

any gold miner would be entitled to forgo the tax concessions provided in

the interim period in order to take advantage of any assistance which might

be provided for the general miner. This will ensure that at no time in the

future will gold producers be disadvantaged in relation to other miners.

6.13 Provisions of the Banking Act currently restrict private owner­

ship and sale of gold in Australia. The Commission notes that in recent years

various countries have repealed such legislation and, in view of the diminished

role of gold in the international monetary system, the Commission doubts that

the continued existence of such restrictions in Australia serves any useful

purpose.

6.14 The Commission regards those gold prospectors who undertake pro­

duction from their finds as being gold producers. The tax treatment of all

forms of mineral production makes no distinction between small and large

producers. The Commission can see no justification for singling out small

producers of gold for preferred treatment over small producers of other min­

erals or over large producers of gold or other minerals. Similarly, the

Commission believes that prospectors for gold (whose income arises from sale

of rights to mine their gold discoveries) should be taxed on the same basis

as prospectors for other minerals.

47

PRODUCTION OF GOLD

As prospecting Is not confined solely to the search for gold,

and as the Commission can see no reason why prospecting for gold should be

distinguished from prospecting for minerals in general, any question of

assistance to the small gold prospector would more appropriately be consid­

ered by the current inquiry into the Petroleum and Mining Industries.

48.

PRODUCTION OF GOLD

7. RECOMMENDATIONS

(A) The Commission recommends that:

(1) the Gold-Mining Industry Assistance Act be allowed to lapse;

(2) (a) existing taxation concessions under Sections 23(o), 23C(1), 23C(2) of the Income Tax Assessment Act be phased out by 1980 on the following basis:

Year ended 30 June 1976 - 100% of concession to apply

Year ended 30 June 1977 - 90% of concession to apply

Year ended 30 June 1978 - 75% of concession to apply

Year ended 30 June 1979 - 50% of concession to apply

Year ended 30 June 1980 - 25% of concession to apply

Beyond 1 July 1980, no special taxation concessions should apply to the gold-mining industry;

(b) at any time in the interim period (1 July 1975 to 30 June 1980) a gold producer may elect to be treated as a general miner for taxation purposes. Such an election should be irreversible;

(3) there should be no differentiation for taxation purposes between the small gold prospector and prospectors for other minerals;

(4) gold in the form of ore, amalgam, concentrate and bullion under sub-items 26.01.9, 28.49.9,71.07.2 and 71.07.9 be subject to minimum rates of duty.

(B) The Commission also invites attention to the suggestion contained

in the report relating to the private sale of gold.

C. W. .CONRON . . . . . . . . . Presiding Commissioner

D. F. .LIVINGSTONE........... Associate Commissioner

CANBERRA, AUSTRALIAN CAPITAL TERRITORY 6 JUNE 1975

APPENDIX 1

TEEMS OF REFERENCE

I, EDVARD GOUGH WHITLAM, Prime Minister, hereby

(1) refer the following matter to the Industries Assistance

Commission for inquiry and report in accordance with

Section 23 of the Industries Assistance Commission

Act 1973

whether the Australian Government should

accord assistance including assistance by

way of taxation treatment for the production

in Australia of gold; and

(2) Specify the period of 14 months commencing on the date

of this reference as the period within which the Commission

is to report on the matters described in paragraph 1 of

this reference.

In its inquiry and report the Commission is to include the

small gold prospector.

F.G. w h i t l AN Prime Minister

8 April 1974.

50.

APPENDIX ?

The names of witnesses who pave evidence at the public hearings and the companies, nines or organisations which they represented are listed in the following table. Abbreviations used in this report are also shown.

WI'i'MESSES Aim ABBREVIATIONS

Witness and capacity in which appearing Company, mine or organisation Address

Reginald .Tohn Hammant, representative John Phillip George Cummings

John Load Cecil Jones, president Craham McOarry, honorary secretary

and on behalf of: -

V. Johnson

C.C. Jones

Η.Γ. and M.T. Powell

W.C. Maclean M . Crowley

J,D. and ". "ash

G . M . Stubbs

All "ations Mining Syndicate Matlock, Pic.

Amalgamated Prospectors and Lease- Kalgoorlie, T- 7.A. holders', Association of w.A. (Inc.)

Star of Mangaroon

Bamboo Creek, Ironclad

Blue Ttoon Gold Mine

^airplay Gold "Ines

Comet Gold TTine

23 Churchill Avenue, Shoalwater Bay, W.A.

Marble Bar, W.A.

M arble Bar, w.A.

Tennant Creek, 'bf,

Kulin, w.A.

Marble Bar, w.A.

Abbreviation used

APIA

Page 2 of APPEMPIX 2

Witness and capacity in which appearing Company, nine or organisation Address Abbreviation

used

in ro

C. Berry Eldorado Mine

J.J. Turnbull Dunbar Gold ’tine

S. Kovacs Pox/er of Wealth Gold Mine

R.R. Johnstone

V.J. Crace Golden v iew

R.S. Carter

L.K. Lakey

Laurence Charles Brodie-Pall, president George Freenan Peas, general secretary Duncan Rutherford Bell,

executive officer, recruitment

Ivan Clark, prospector

Charles Henry Fletcher, producer and prospector

Philip Purich, assistant secretary

Archibald Busby, technical director

Vest Coast Foldings Ltd.

The Chamber of Mines of Western Australia (Incorporated)

Department of the northern Territory

Engelhard Industries Ptv. Ltd.

Tennant Creek, M.T.

42 Cortis Street, Mt. Oravatt, Old.

Tennant Creek, . T .

Parkers Range, vilgarn Coldfield V.A.

Southern Cross, v.A .

Yarri, V.A.

Adaire,Street, M aldon, Vic.

C /- 16 St. George's Terrace, Perth, v .a . .

4-6 Bennett street, IT.A. Chamber of

Past Perth, v .a . 'fines

Craytown, Vic,

3 Elliot Road, Claremont, V.A.

Dan·'in, F.T.

33D Settlement Road., Thomastorn, vie.

Page 1 of APPENDIX ?

Witness and capacity in which appearing Company, mine or organisation Address

William Henry Crawford, secretary Hill 50 Gold Mine No Liability 11 St. George’s Terrace, Perth, W.A.

Paul Corinthian Teas, managing director Lone Star Exploration N.L. 71 Oueens Road, Melbourne

Thomas Herbert Aitken, director Raynor Elder, refinery superintendent

Mntthey Garrett Pty. Limited 160 P.oclty Point Poad, Kogarah, N.S.w.

Anthony David Motion, chairman Metrnmar Minerals Limited 30 Kings Park Road,

West Perth, w .a .

Francis Loyola Ilennessy, general manager Mount Morgan Limited Mount Morgan, Old.

John Oliver Cashman, general manager North Kalgurli Mines Limited Fimiston, W.A.

Samuel James Hodge, finance manager Dr. Ernest Miller, senior mining engineer Ronald Kevin Moore, group taxation manager

Peko Mines Ltd. 47 Macquarie Street,

Sydney, N.S.W.

Abbreviation used

Hill 50

Lone Star

Metraroar

Mount Morgan

North Kalgurli

Peko

Leslie James Lawson tributer Sambas Gold Mine Harrietville, Vic

Page 4 of APPENDIX 2

Mitness and capacity in vdiich appearing Company, mine or organisation Address

Ian Leslie Veale, manager Noel Edward Kagi

Spargo's Exploration N.L. 523 Hannan Street,

Kalgoorlie, N.A.

Kevin John Carter, inspector of nines and quarries

South Australian Department of Mines 169 Rundle Street, Adelaide, S.A.

Francis Leonard James Sampson, secretary Kenneth Maxwell Wright, director

Mattie Cully Gold Nines N.L. 566 St. Kilda Road,

Melbourne, Vic.

Keith McGregor Paterson, superintendent of state batteries

Mestern Australian Department of Mines 56 Adelaide Terrace, Perth, W.A.

Laurence Charles Brodie-Hall, executive director and chairman of the following companies :-Kalgoorlie Lake View Pty. Ltd.

Mestern Mining Corporation Limited and on behalf of: -

Kalgoorlie Lake View Pty. Ltd.

459 Collins Street, Melbourne, Vic.

Finiston, m .A.

Central Norseman Cold Corpor­ ation No Liability Central Norseman Gold Corporation No Liability

191 Great Eastern Highway

Belmont, m .A .

Gold Mines of Kalgoorlie (Aust.) Limited Gold ’fines of Kalgoorlie (Aust.) Limited

459 Collins Street Melbourne, Vic.

Abbreviation used

Spargo's Fxplora- tion

Vattie Gully

M.A. department of vfines

Mestern Mining

Kalgoorlie T.ake View

Central Norseman

Gold H ines of Kalgoorlie

APPENDIX 3

REQUESTS AND SUGGESTIONS

Request by Requests and Suggestions

Western Australian Mines Department

South Australian Department of wines

The Chamber of Mines of Western Australia (Incorporated)

Central Norseman Gold Corporation N.L.

Kalqoorlie Lake View Ptv. Ltd.

- general assistance in the form of taxation concessions or, if not granted, the provision of grants or loans by the Australian Government to assist the gold-mining industry in Western Australia.

- recommends against any reduction in the taxation concessions and subsidies at present applying to gold producers in Australia, including those applying to the small gold prospector.

- continuing exemptions from company taxation and restoration of the exemp­ tion from taxation of dividends received from profits on gold-mining operations; complete exemption from company tax until individual companies begin to pay dividends and, subsequently, a deple­ tion allowance of 25 per cent.

- continuation of the provisions of Division 10 of the Income Tax Assess­ ment Act allowing for accelerated write off of capital investment for mining

projects.

- in addition, low interest loans for the immediate development, rehabilitation of mines and plant and for housing, and assistance for recruitment and training of new employees.

- a depletion allowance of 50 per cent providing for deductions from taxable income.

- if the Australian Government decides to give effect to its proposals to subject income from gold mining to income taxation, a phasing out of the exemption over a period of not less than 5 years.

- long-term low interest loans for the provision of housing, power, water etc. Immediately, a loan of $1.5 million for housing; further loans

from time to time to provide what are generally accepted as Government fac­ ilities in large centres of population.

- a depletion allowance of 50 per cent providing for deductions from tax­ able income. 56

Page 2 of APPENDIX 3

Request by Requests and Suggestions

- if the Australian Government decides to give effect to its proposals to subject income from gold mining to income taxation - a phasing out of the exemption over

5 years.

- long-term low interest loans of approximately Si.65m each year over the next four years for the provision of housing in the Kalgoorlie -

Boulder area.

Spargo's Exploration 17.L. - assistance of $1.2 million (October

1973, costing) capital necessary to re-open, re-equip, reinvestigate the mine and establish a treatment plant at the Oueen Margaret Gold Mine at

Bulong and later at its other prop­ erties. This assistance could partly be provided by the introduction of the following selective tax concessions.

(1) the provisions of a gold zone allowance of $300 per annum to gold­ mining and exploration emnlovees.

(2) the sale of rights to mine gold be tax free.

(3) dividends declared on profits derived from gold mining be tax free.

(4) a 100 per cent tax deduction on all capital funds subscribed to gold exploration and mining companies operating xrithin the prescribed zone for a period of five vears.

(5) profits from gold-raiding production be tax free.

Hill 50 Gold 'line Mo Liability - the Income Tax Assessment Act exemp­ tions, as they were until 1974, remain in force. If not, then at least, taxing of gold income and gold dividends

should be phased in over a period to reduce the shock effect of such taxes on investors.

?lorth Kalgurli M ines Limited - direct assistance with expenditure

- assistance by ”av of cost reduction

The company considered that these can be achieved by measures which include the following:

- retention of Sections 23(o') and 23G of the Income Tax Assessment Act at least until such tine as it begins paying reasonable dividends.

Page 3 of APPENDIX 3

Request by Requests and Suggestions

Metramar Minerals Limited

Peko Mines Ltd.

Mount Morgan Limited

Sambas Gold Mine

Lone Star Exploration

Ivan Clark

Scheelite Gold Mine D.P. Doherty

P.A. Jarvis

K.G. Craig

C.H. & M.H. Fletcher

- re-introduction of Section 44 of the Income Tax Assessment Act

- retention of current exemptions from sales tax on goods for use in the industry.

- a relaxation of import tariffs on materials and equipment for use in the industry which are not manufactured or obtainable in Australia.

- consideration be given to a reduction in freight rates by means of a subsidy scheme.

- present exemptions from income tax be maintained. Should any taxes be imposed they should be phased in over a long period.

- continuance of the existing income tax structure.

- extension of the provisions of Section 23(o) of the Income Tax Assessment Act to apply when the value of gold obtained from the property by the tax-payer is not less than one-quarter of the output of that property other than the value of pyrites. Continuation of the provisions of Division 10 of the Income Tax Assessment Act.

- granting of taxation concessions on gold production up to 500 ounces per year.

- re-establish the tax-free status of dividends on gold sales to shareholders.

- continuation of existing concessions.

- exemption from income tax should be continued for at least 5 years.

- concessions on fuel supplies should be reintroduced.

- retention of sales tax concessions.

- provision of equipment to prove prospects, then option of purchase.

- existing tax exemptions to be phased out over time. - subsidy for battery charges $1 for $1 up to one dwt. fine gold per ton.

58

Page 4 of APPENDIX 3

Request by Requests and Suggestions

B. i'revena

G . Baker

L.B. Wight

Amalgamated Prospectors and Lease­ holders Association of W.A. (Inc.)

- assistance not warranted on current prices.

- gold should be tax-free and mining stores, machinery and equipment used to produce gold should continue to be exempt from sales tax.

- income from gold to be free from taxation.

- profits on sales of leases and claims be tax-exempt for prospectors.

- if taxation introduced,allow some write off of expenses as for other primary production.

- a grant of $90,000 for the purchase of equipment to be loaned to prospectors.

- exemption from taxation of net income derived from mining gold.

- reintroduction of Section 21 (p) of the Income Tax .Assessment Act.

The Association also presented written submissions, including requests, on behalf of the following:

R.S. Carter - opposed taxation of income from gold.

W.J. Grace

K.R. Johnston

W. Johnson

S „ rovacfi

L.K. Lakey

T7.G. Maclean and M. Crowley

- continuation of taxation concessions.

- retention of existing tax incentives.

- a complete tax holiday on income derived by companies or individuals from the production of gold, or W o n dividends paid from profits derived from the sale

of gold directly produced bv that company until that company or individual completely Recoups the entire capital cost of establishing the "old production

operation.

- financial assistance to purchase equipment.

- assistance to keen the remaining few gold nines °oing as long as possible and to emplov the few remaining gold pros­ pectors .

- Continuing tax relief ror income derived from gold.

- Improved crushing facilities at "ennnnt Week.

J.R. and R. Mask - abolition of the proposed tax on "old

mining. / 'option oc fbe W e e world price as the official Australian price, thus allowing producers to be paid in full

innediatelv.

59

Page 5 of ΑΡΡΕΙΤΡΙΖ 3

Request by Requests and Suggestions

H.E. and Μ.I. Powell - tax-free (Income from gold) particularly

for remote areas.

S.H. Stubbs - no tax on gold production.

J.J. Turnbull - long-term, low-interest loans for the

purchase of suitable plant and equip­ ment for individual mines, once work­ able ore is proven.

West Coast Holdings Ltd. - profits from gold mining should remain

exempt.

I.L. Jesser - prospecting and mining subsidies and

taxation concessions.

J.R, Allen - no tax for prospectors on gold recovered

or sale of leases.

- assistance by Tlines Department geologists and funds to drill areas of interest to prove reserves.

60.