Increased mining resource tax to have little impact on industry

Despite the Chinese government's move to significantly raise the resource tax on lead and zinc mines, copper mines and tungsten mines as of Aug. 1 of this year, industry insiders believe the new policy will have a minimal effect on the mining industry as a whole. 

According to the policy, five new tax brackets will be introduced for lead and zinc mines, ranging from RMB 10 ($1.32) per ton of lead and zinc ore to RMB 20 ($2.64) per ton of lead and zinc ore, up 400 percent on average from the current resource tax rate.

The five new tax brackets for copper mines range from RMB 5 ($0.66) per ton of copper ore to RMB 7 ($0.93) per ton, up at least 260 percent from current levels while tungsten ore resource tax brackets will range from RMB 7 ($0.93) per ton to RMB 9 ($1.19) per ton, surging 1,516 percent on average from a current average level of RMB 0.50 ($0.07) per ton.

The increased resource tax on lead and zinc mines will neither dramatically increase our production costs, nor will it significantly impact profit margins. This is because prices for both refined lead and refined zinc are currently at high levels, completely offsetting the relatively small increase in the cost of ore mining," Guan Yonghua, senior sales manager.

The company's Fankou Lead and Zinc Mine falls into the top-grade lead and zinc mine tax bracket, which will result in a resource tax hike from a current RMB 4 ($0.53) per ton to RMB 20 ($2.64) per ton as of Aug. 1.  

The company's resource tax bill for 2006 amounted to RMB 5.07 million ($669,749), compared to net profits amounting to RMB 1.135 billion ($149.93 million).  

We acknowledge that the main purpose of the policy is to control redundant exploration and resource waste, and aid mining companies in sustainable development. However, despite the new policy, our profits from the lead and zinc mining sector will still be considerable," a Chihong Zinc and Lead securities department official, who asked to remain anonymous, said today.

The official further commented that the company plans to announce tomorrow the direct cost increase of the new policy, but she stressed that the resource tax is still only a small part of total company expenditure. 

Shanghai Guotai Jun'an Securities analyst, Lin Haoxiang, commented that "despite a resource tax increase of between 300 percent and 1500 percent, according to our calculations, the price of downstream products such as refined lead, refined zinc and refined copper will only increase by around 2 percent from current levels."

Besides, mining companies can easily transfer the increased cost to downstream smelters, especially as the domestic metal mining sector is currently a sellers' market due to the overall scarcity of metal resources," Lin added.

Lin further claimed that although some mining companies experienced a fall in stock price today, this reflected an overreaction from investors, rather than a actual downward trend.

However, the policy does demonstrate the government's determination to control overheated investment in the domestic mining sector, Lin said.  

The soaring price of metal in recent years has caused a mad rush in mining investment across the nation, due to the highly lucrative nature of the business. 

However, the government has become increasingly aware of the many problems brought by such investment activity, and I believe the government will issue further regulations and policies in the near future in order to ensure sustainable development in the mining industry," he concluded.