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Mineral and Petroleum Resources Royalties Bill

Mineral and Petroleum Resources Royalties Bill. 13 May 2008. Contents. Background Comments: 2.1.1 Tax base, deductible expenses, integrated companies 2.1.2 Royalty / tax rate 2.1.3 Community royalties 2.1.4 State lease payments / State share of profits

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Mineral and Petroleum Resources Royalties Bill

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  1. Mineral and Petroleum Resources Royalties Bill 13 May 2008

  2. Contents • Background • Comments: 2.1.1 Tax base, deductible expenses, integrated companies 2.1.2 Royalty / tax rate 2.1.3 Community royalties 2.1.4 State lease payments / State share of profits 2.1.5 Earmarking of revenue 2.1.6 Bad debts 2.1.7 Relief for small miners 2.1.8 Relief for marginal mines 2.1.9 Gold mining 2.1.10 Petroleum sector 2.1.11 Coal bed methane (CBM) 2.1.12 Fiscal stability 2.1.13 Mining dumps and tailings 2.1.14 Effective date of implementation 2.1.15 Deductibility of mineral royalties for Income Tax purposes 2.1.16 VAT on mineral royalties payable to the State 2.1.17 Clay to manufacture bricks 2.1.18 Ring fencing per mine 2.1.19 Administration

  3. Background • Mineral and Petroleum Resources Royalty Bill (MPRRB) follows on the Mineral and Petroleum Resources Development Act (MPRDA), (Act 28 of 2002) • 1st draft Mineral and Petroleum Royalty Bill released for public comment on 20 March 2003 • 2nd draft of Royalty and Petroleum Resources Royalty Bill released for public comment on 11 October 2006 • May / June 2007 - Consultation, Workshop • 3rd draft of Royalty and Petroleum Resources Royalty Bill released for public comment on 6 December 2007 • Briefing by National Treasury to PCOF, 4 March 2008 • PCOF public hearings 11 & 19 March 2008 • 23 April 2008 – Consultation, Workshop

  4. Anglo American South Africa Limited Assmang Limited Bapo Ba Mogale Community BHP Billiton – Manganese & Coal BHP Billiton Petroleum Chamber of Mines (COM) Chamber of Mines – Thomas Walde Cosatu De Beers Gold Producer’s Committee – COM Stephen Meintjies OPASA (Offshore Petroleum Association of South Africa) OPASA – Fiscal stability, Ernst Young PASA (Petroleum Agency of South Africa) Routledge Modise 16. M. van Blerck – Standard Bank (PCOF – oral) 17. SAMDA (South African Mining Development Association) 18. Implats 19. Ingonyama Trust 20. LRC (Legal Resource Centre) 21. Xstrata 22. Trans Hex Group Limited 23. Zululand Anthracite Colliery Michael Schroder – OM Value Equity Assocoaition Ltd. Clay Brick Association Ltd ArcelorMittal Aquarius Revenue Watch Institute PetroSA SARS Comments by:

  5. Tax base • Gross Sales Value = • Market value of a transferred mineral resource at its readily saleable condition (i.e., refined or unrefined (“concentrate”) state of mineral as specified) • Disregard transportation costs of “final product” (including insurance and handling charges)

  6. Tax Base: Market Value / Gross Sales • Refined; & • Gold • PGM - refined • Oil & Gas • Unrefined; • Diamonds • PGM – concentrate • Iron ore • Coal • Manganese • Chrome • Base metal • Mineral Sands • Sliver concentrate • Uranium • Aggregates • Other

  7. Tax rates – formula (X = EBIT/Gross Sales *100) • Y (r) = 0.5 + X/12.5 (Max = 5.0) Refined metal (refined Gold, refined PGM), and Oil and Gas 2. Y (c) = 0.5 + X/9.0 (Max = 7.0) Unrefined; Concentrate Coal, Rough Diamonds, Iron Ore, etc.

  8. EBIT • EBIT = Taxable income (as defined in the Income Tax Act), excluding— • Financial instrument (except the hedging minerals) income and expense (e.g. interest expense) • Assessed losses • Capital gains & losses • Mineral royalties • If EBIT < zero, assumed to be zero. • Note allow for 100% capital expensing – same as for income tax purposes

  9. Y = 0.5 + X/12.5 (Refined)Y = 0.5 + X=/9 (Unrefined)

  10. EBIT (accounting depreciation?)

  11. 1. 2. 3. 4. 5. Exploration Mining Mineral Refining Value Processing Addition _______ ____ _______ ______ _____ Geophysics Drilling Crushing Smelter Rolling & Drilling Cutting Hydro-Met. Plant Furnaces moulding Survey Hauling Material Handling Electro-winning Machining Furnaces cells, Caster Assembling ………….….….. ……………… ………………….. ……………… …………….. GIS Mine Planning Comminution Reductants Design Analytical Consumables Grinding, media Chemicals Marketing Data Processing Sub-contracting Chem / reagents Assaving Distribution

  12. THE FOUR STAGE BENEFICIATION PROCESS (Chamber of Mines) Mining Manu-facturing

  13. 1. 2. 3. 4. Mining Mining / Refining Manufacturing processing _______ _______ _________ _________ The action of The action of cover- The action of converting The action of mining & producing ting a concentrate the intermediate goods manufacturing a final an ore or concentrate into a bulk tonnage into a refined product product for sale (primary product) intermediate product suitable for purchase (such as a metal by both small & sophis- or alloy ticated industries (semis) ……………………… …………………….. ………………………….. ……………………………… Run-of-mine ores Mattes/slags/bulk Steel/alloys Worked shapes & forms washed & sized chemicals Worked shapes & forms concentrates Ferro alloys/ pure metals

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