By Warwick Smith
Andrew (Twiggy) Forrest, recently suggested the big iron ore producers in Australia should cap production of iron ore in order to lift prices. This suggestion has been attacked and ridiculed by the other miners, by the Australian government and by the ACCC. While I certainly don’t think that allowing the mining companies to reduce production in order to make more money out of our mineral resources is a good idea, perhaps we, the Australian people, should have a think about the way we go about selling of our natural capital. In Australia mineral resources are not owned by the mining company or by the owner of the land underneath which they lie, they are owned by the Australian people.
Selling mineral resources is not like selling manufactured commodities. It is an asset sale. We own the assets and we effectively sell them to the mining companies who then extract and process them and sell them on the international market. Under the current arrangement, when the price of the assets go up, it’s not us, the owners, who benefit. It’s the mining companies. The Mineral Resource Rent Tax was one approach (somewhat flawed though it was) to rectifying this failure by governments to get a good price for our assets. The Coalition bowed to pressure from the mining industry and repealed the mining tax without citing a single coherent national interest reason.
There are other ways we could capture more of the value of our assets. One way would be to emulate the Saudi Arabian approach to oil production. We could tender out the job of digging up our resources and then sell them ourselves. Competitive tenders would ensure mining company activity continued in the country but the miners would simply get an ordinary return for their effort and we, the owners of the resources, would receive both the benefits and the risks associated with volatile international prices.
The goal of asset sales is generally to sell while the price is high and hold on to the asset when the price is low. This is effectively what Andrew Forrest was suggesting the miners should do. The problem with this is that the assets are ours, not his. We should think about how and when we sell our assets instead of just digging them up and shipping them out as fast as we possibly can. If we tendered out the process of extracting and refining resources but maintained public ownership the entire time, we could have this conversation publicly and decide what we want done with our assets. The miners of course would hate this and would call it anti-competitive and market interference and many other economic swear words but it would be nothing of the sort.
Under no other circumstances are public assets sold in a manner that minimises the public return from the sale. Why do we do this with our mineral resources?