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How Much Does a Mine Cost?

Australia’s 40% mining tax could discourage the establishment of new mines.

Mines vary in size and complexity, but here are a few numbers to give you an idea of the scale of costs pre-tax.

For giant-scale mining projects…

Clearly, mining is no popsicle stand. And those are just capital costs. Infomine offers a glimpse into operating costs – themselves big chunks of change.

Capital costs are typically a mining company’s biggest expense – and an eye-watering one. On top of that, companies must pay labor costs, interest payments and environmental cleanup (assuming the country has and enforces environmental regulations).

Mining is not a small business and can’t ever be. Large miners can still afford a new mine even with 40% lopped off their “excess” profits. But less well-endowed companies may find themselves short of funds for a major expansion (i.e. a new mine):

Example large company: BHP Billiton – Iron ore business segment

US$6,229,000,000 profit in FY2008

US$8,735,000,000 fixed assets

Threshold (assets x 10-year government bond yield, or 5.42% as of May 28, 2010): US$473,437,000

Taxable profit: US$6,229,000,000 – US$473,437,000 = US$5,755,563,000

Profit after 40% mining tax = US$3,453,337,800

Example small company: Whitehaven Coal

A$166,856,000 profit in FY2008

A$508,838,000 fixed assets

Threshold (assets x 10-year government bond yield, or 5.42% as of May 28, 2010): A$27,579,020

Taxable profit: A$166,856,000 – A$27,579,020 =A$139,276,980

Profit after 40% mining tax: A$83,566,188 (US$70,700,000)

For further analysis of Australia’s mining tax, see RGE’s Australia’s Big, Bad Mining Tax: What’s at Stake?

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