How to Access R&D Tax Dollars

2. How to Access R&D Tax Dollars Jane Drummond – MJA Senior Manager Tony Partridge – MJA Associate

3. R&D Tax Program Agenda • Administration and claim process • The benefit • What is R&D • What $ can be claimed • German Creek example

4. R&D Tax Program • Key gov’t support for industry R&D • Assists around 8,500 companies annually • $1.6 billion (tax revenue foregone)

5. R&D Tax –Administration AusIndustry/ATO joint administration Innovation Industry Science & Research Treasury Innovation Australia (AusIndustry) Technical Issues ATO Expenditure Issues

6. R&D Tax - Claim Process • Self-assessment basis • Annual Registration of R&D • Lodge with AusIndustry within 10 mths after FYE • Annual Company Tax Return Schedule • ATO

7. R&D Tax – Program change • Effective 1 July 2011 • R&D Tax Concession = 125% deduction • 7.5c/$ R&D (+175% premium) • R&D Tax Incentive =Tax Offset (40/45%) • 10c/$ R&D (companies >$20 mil turnover) • 15c/$ R&D (companies <$20 mil turnover)

8. R&D Tax Incentive – The benefit R&D spend $1 million $ benefit $ refund Company T/O >$20 mil $100,000 - Company T/O <$20 mil $150,000 $450,000 max refund dependant on tax loss R&D spend unlimited

9. What is R&D? R&D is all about solving defined technical problems. Where a company identifies a technical problem then essentially all work done to solve that problem is R&D Innovation Australia Board

10. What is R&D – Legislation • R&D claimed on a project basis • R&D activities defined as • Core – must be experimental • Supporting – must be directly related

11. What is R&D – Definition Core (experimental) activity • Whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that: • Is based on principles of established science;

12. What is R&D – Definition cont • Proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and . . . (b)That are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).

13. What is R&D – Project examples • New/improved processes for higher efficiency, safety, productivity • New plant and/or process design • New/improved products • New market requirements • Not R&D • Supplier trials (on whose behalf?)

14. What is R&D – Project work . Conceptual/ hypothesis &investigative work $ Prototypes & Pilot Plant Production Trials

15. What is R&D – Production trials R&D can involve production activities (even when product is sold) • Claim restricted to portion of plant/ process that R&D relates • Trial period defined by minimum time • technical improvements being sought and/or • KPIs met

16. What is R&D – Production trials Evidence that supports the case of experimentation • Additional non- routine procedures eg heightened monitoring • Factors such as production disruption

17. What$ can be claimed? • Salaries • Contracts to RSPs eg Uni’s, CSIRO • Other: • Contractors • Hire of equipment • Travel • Overheads (direct/allocated) • Operation/production trial costs • Plant & pilot plant (tax deprec. only) • Feedstock

18. Case Study: • German Creek mine • Premium open-cut coking coal operation • Opened in 1981 • Raw coal stockpile and reclaim • Friable coal (HGI ~ 100)

19. German Creek CHPP - Then!

20. Original CHPP (1981-1983) • Key features . . . • Rotary breaker to 50mm • Screened at ~ 0.7mm (0.5mm wedge wire) • 4 DMCs and two-stage Flotation (4 banks primary, 2 banks secondary) • 900 tph nominal capacity

21. ORIGINAL CIRCUIT

22. Problems • Underground mine opened – increased production rates • Advance sales! • ROM stockpile + Rehandling • >>> Feed size variation and plant imbalance • Inadequate surge capacity • Coal particle losses to flotation tailings.

23. Initial trials • Spirals trialed IN-HOUSE to recover coal lost to flotation tailings • The required increase in product tonnage not achieved • Shell Coal Australia (major shareholders) offered services of their Senior Coal Prep Engineer as INTERNAL CONSULTANT • Flew from Melbourne for two-week visit (subsequently extended).

24. Circuit changes • Problem seen as the poor performance of DMCs and Flotation for particles of ~1mm • Planned additional DMCs and Flotation cells rejected due to time and cost constraints • Spirals known to work best (if not well!) on that size range • CONCEPT of spirals installation as a separate process stream first suggested

25. Subsequent progress • Paper Study by Capcoal / Shell team • HV Plant Visit to see and discuss recent spirals installation • Engineering Company (BMCH) included in preliminary design discussion • COMMITMENT!

26. Spirals CONCEPT • Decided to . . . • Install spirals as intermediate feed size process stream • Size range of 0.4 x 1.4 mm chosen on basis of feed size distribution • 300 tph spirals capacity ( 1/3 increase in plant capacity ) • Carry out or commission spirals trials to determine / confirm operational details

27. REVISED CIRCUIT

28. Pilot Plant Testwork • Pilot In-Plant Test Circuit • by Plant Personnel • Open circuit test rig using different aperture panels on small section of a deslime screen. • Underflow variable but 3mm aperture screen shown to give required 1.4mm cut. • 200mm classifying cyclone and vibrating 0.8 mm sieve bend shown to give 0.4mm split.

29. Pilot Plant Testwork • Test Circuit at Cyclone Sluices • by Capcoal personnel and Suppliers’ staff • Closed circuit test rig using -5mm +0.5mm slurry samples from wedgewiretest panels in the plant. • Tests used to determine performance over different feed rates and feed solids • Results promising, so decided on more extensive steady-state testwork . . .

30. Pilot Plant Testwork • Test Circuit at Mineral Deposits • by Capcoal personnel and Suppliers’ staff • Similar test rig to previous tests but with improved sampling system. • Tests covered higher feed solids concentrations and higher feedrates • Determination of relationships between cut point, efficiency and feed conditions • Evaluation of minor spiral modifications

31. Test Circuit at Mineral Deposits ExcludedActivities • Activities that are not core R&D activities include: • Routine quality control • Prospecting/exploring/drilling for minerals, oil or gas • Management studies or efficiency surveys • Collection of information to comply with statutory requirements • Reverse engineering • Note: some of these activities may qualify, in a limited sense, as directly related activities.

32. Conclusions • Spirals would provide acceptable performance on the selected size range • Relationships between the process variables provided the basis for process optimisation • Middlings recycle and product desliming would be necessary to achieve the required yield and ash values

33. FINAL SPIRALCIRCUIT

34. Revised Plant • 50 x 1.4 mm to DMCs 600tph • 0.4 x 1.4 mm to two-stage SPIRALS 300tph • - 0.4mm to FLOTATION • . . . Six banks single stage 300tph • Associated additional pumps, sumps, screens and classifying cyclones

35. Plant Optimisation and Control • Six weeks of in-plant trials by Plant Staff • To establish steady state operation • To establish control strategy and operating philosophy • Finally . . . • The installation of flowmeters and variable speed drives to enable optimum control

36. Summary – R&D Project Technical problem(defined ) • Fines problem due to high friability and lack of surge capacity Technical objective (new knowledge) • Investigation of the use of spirals as a separate parallel process

37. Summary – R&D Claim R&D activities (experimental ) • Preliminary studies (spirals on tailings) $ salaries • Concept development (spirals as parallel process stream) $ salaries and consultant costs • Preliminary test-work on site (1 spiral) $ salaries, plant costs

38. Summary – R&D activities cont. • Pilot scale test-work off site (2 trials at 2 locations) $ salaries, travel, contractor/lab costs • Design review (iterative feedback R&D) – 2 stage process requirement identified $ salaries • Full Scale Plant trial (6 weeks) $ salaries, Plant op costs (>$1 mil)

39. Summary – R&D claim Project cost approx $ 2 million Claim value = $ 200,000

40. Last word –Evidence • You need supporting documentseg: - Records of technical issues- Approvals for process/product changes - Project plans/scope of works- Trial plans, sheets/logs, reports, photographs - Consultant/contractor reports- Additional testing/monitoring systems - Presentations and publications

41. Thanks for your time - questions?