On 11 October 2019 the Western Australian government announced that it will introduce a new royalty regime for lithium producers in the form of a 5% feedstock royalty rate for lithium hydroxide and lithium carbonate where those are the first products sold and the feedstock is spodumene concentrate.
The announcement comes after a recent review into lithium royalties as part of the government’s Future Battery Industry Strategy and aims to encourage downstream processing of lithium concentrate in WA.
The current regime
The WA royalty regime is contained in the Mining Regulations 1981 (WA) (Mining Regulations), under which royalty rates are calculated either by a specific rate per tonne of production or ad valorem (a percentage of the ‘royalty value’ of the relevant mineral). Currently an ad valorem rate of 5% applies to lithium concentrate.
The 2015 Mineral Royalty Rate Analysis identified a gap between the current ad valorem royalty rates of 5% for concentrates and 2.5% for minerals in metallic form (or equivalent). The review recommended that an additional ad valorem rate of 3.75% should be introduced for lithium carbonate, which is subject to more intensive processing than is typically used to produce concentrates. This recommendation was opposed by industry given the magnitude of the cost required for the beneficiation of lithium concentrate feedstock.
The announced amendment
The announced amendment is intended to provide certainty to lithium producers and incentivise downstream processing. It will cap the royalty rate for lithium hydroxide and lithium carbonate at 5% of the value of the spodumene concentrate used to produce those refined products, provided they are the first products sold.
It is not yet clear when the amendment will be introduced to the Mining Regulations and when it will take effect. The wording of the amendment, once introduced, will hopefully provide some clarity around questions that remain, including:
- How will the new royalty rate be applied where different, but related entities own the mine and the refinery, or where a mine and refinery is conducted on a joint venture basis, but the two are not integrated (such that the spodumene is the first product sold from one entity to another entity for processing)?
- Will there be any requirements around the location of the relevant processing facility? Will the royalty rate only apply where the facility is located in Western Australia?
- Will the regulations still include a reference to lithium products other than that specified in the announced amendment? Ie, will a royalty rate be applied to lithium-bearing minerals other than spodumene and, if so, at which stage of processing will the rate apply?
- How will the value of spodumene feedstock be calculated for the purpose of applying the rate, particularly given the absence of a recognised pricing index?
The government has said that the amendment will be introduced ‘as soon as practicable’.