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Minerals Resource Rent Tax (MRRT) Valuation considerations for coal and iron ore miners - presented at www.minesandmoney.com

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Progress report on the implementation of the Mineral Resource Rent Tax and development of the carbon tax in Australia …

Progress report on the implementation of the Mineral Resource Rent Tax and development of the carbon tax in Australia

Impact on the valuation of mining companies and projects

Impact on investor appetite for Australian-based mining projects

How do the taxes compare with those of other mining nations?

What changes, if any, need to be made to the proposed taxes to protect and promote the mining industry in Australia?

Presented at www.minesandmoney.com

Ross Henderson, Managing Director, Australia, American Appraisal

Adrian Immarrata, Associate Director, Financial Valuation Group, American Appraisal

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  • 1. Valuation Transaction Consulting Real Estate Advisory Fixed Asset ManagementMinerals Resource Rent Tax (MRRT)Valuation considerations for coal and iron ore minersOctober 2011Presented by:Ross Henderson ®Adrian Immarrata
  • 2. Overview MRRT overview MRRT - how is it to be calculated Valuation approaches Valuations required for MRRT Mining rights and intangible valuations Tangible asset valuations Other tax impacts Conclusion Key contacts 2
  • 3. MRRT overview A new tax levied against profits of iron ore and coal projects. Aimed at providing the Australian people a fair return on non renewable resources which can only be extracted once. Expected to commence on 1 July 2012. Second exposure draft released and EM published Other guidance provided on: Valuation procedures - current ATO valuation guidelines Market value of starting base assets Record keeping for starting base assets Market value risk factors 3
  • 4. MRRT – How it is to be calculated MRRT profit x 22.5% ‘Revenue’ at ‘taxing point’ less: expenditure and allowances ‘Market value price’ x volume Taxing point When the mineral leaves the ‘run- of-mine (ROM)’ stockpile 4
  • 5. MRRT – How it is to be calculatedKey inputs 5
  • 6. MRRT – How it is to be calculatedAllowances Various deductions from revenue including: Royalties Starting base assetsStarting base asset allowances Choice of either book value or market value Needs to be as at 1 May 2010 Opportunity is for companies that have mines as at this date – future additions and start ups will get immediate deduction Book value approach Market value approach •Accounting book value = asset value •Market value = asset value • Excludes mining rights •Includes mining rights • 5 year write off period •Up to 25 year write off period •Uplifted at LTBR + 7% •No uplift 6
  • 7. Valuation methodologies Compliant with VALMIN code and IVS Market value defined as: “the estimated amount for which an asset should exchange on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.’ Approaches Income approach. Market approach Cost approach 7
  • 8. Valuations required for MRRT PP&E valuation Resources (intangible) valuation establishes starting base for tangible assets establishes starting base for resources Deprecation Deprecation of tangible of resource assets 8
  • 9. Mining rights and intangible asset valuations For operating mines likely to require income approach (free cash flow) to be determined at the taxing point Exploration assets less likely to be based on the income approach and dependent of stage of project Revenue at taxing point determined with the assistance of transfer pricing experts Costs, capital expenditure and financing costs would be derived from operations and capital structure 9
  • 10. Tangible asset valuations Identify and value tangible assets upstream for starting base allowance Land (rural buffer, residential, village camp, etc.) Mine and site improvements (Haul roads, dams, access roads, buildings, etc.) Plant & equipment (dragline, excavators, trucks, etc.) Identify and value tangible asset downstream for asset charge in netback of revenue calculation (either at gross replacement cost of market value) Crushing Beneficiation Handling Storage Loading Transportation Port 10
  • 11. Other tax impactsCarbon tax Price on carbon to combat the effects of climate change To cover four of six greenhouse gases considered under the Kyoto Protocol Expected to commence on 1 July 2015. Legislation has not made passage through parliament therefore significant uncertainty existsPRRT The PRRT has also been revised to include on-shore oil and gas projects. Starting base assets can be at market value with an immediate deduction. 11
  • 12. Conclusion MRRT still not law but appears more than likely to proceed by the end of the year Some miners already beginning implementation of MRRT plan Valuations are a major input if using the market value method Splitting assets between up and downstream Advantage for exploration and development stage mines 12
  • 13. MRRT valuation teamRoss HendersonRoss is the Managing Director for the American Appraisal Industrial Valuation Group for the Oceaniaregion. Ross has more than two decades of experience in asset valuation and consulting services.He has provided specialist valuation advice to multinationals throughout Australia, Asia, and Europeto aid in preparing taxation, financial, and general valuation strategies.Adrian ImmarrataAdrian is an Associate Director in the American Appraisal Financial Valuation practice for the Oceaniaregion. Adrian has over 11 years experience in corporate finance and advisory roles, valuing businessesof all sizes for a variety of purposes, including financial reporting, taxation, acquisition and groupreconstruction.He has significant experience of undertaking business and intangible asset valuations to meet therequirements of Australian and International Accounting Standards, as well as ATO requirements.To learn more about us, visit our website:www.american-appraisal.com.auOr Call us: +61 2 8507 4111 13
  • 14. Leading / Thinking / Performing™We invite you to discoverthe American Appraisal difference. 14