Show Hide image

Rio Tinto and BHP Billiton agree to higher royalties

Australian mining giants was support for their proposed £78bn joint venture.

Australian mining giants Rio Tinto and BHP Billiton have agreed to pay higher royalties on iron ore to the Western Australia state government in return for support for their proposed £78bn joint venture.

However, the move undermines Australian Prime Minister Kevin Rudd's plans to impose a federal profits tax on mining companies.

The Western Australia government recently increased royalty levied on the two miners, and made changes to agreements on infrastructure sharing and ore-blending. Both the companies have been paying concessional rates since the mining industry was set up in the area in the 1960s.

According to the new deal - which will be applicable from 1 July - BHP and Rio will pay an enhanced royalty of 5.6 per cent of their sales revenue, compared to 3.75 per cent in the past. However, it still requires approval from government regulators in Australia as well as authorities in Europe and China.

The deal will ensure flow of more than $1bn to the Western Australia government in the next four years.

In November 2008, a merger that would have created the world's largest mining group was abandoned after BHP dropped its takeover offer for Rio due to the recession.