Canberra, 9 February 1967
Bougainville copper—notes for visit of Sir Maurice Mawby
Attached are notes covering matter which may be raised in your proposed discussions with Sir Maurice Maw by on Tuesday, 14th February.
Attachment
[ matter omitted ]
Background
• Exploration began end 1963.
• Reserves—C.R.A. have advised that about 90m. tons have been proved by drilling—0.63% copper and containing 0.58 dwt. gold per ton. (Confidential figures which C.R.A. are not yet ready to release publicly.)
• Development cast—possibly $100m.
• Employment—present 420, potential 1400.
• Exports potential $50m.
Agreement
• Because of high costs of exploration, large capital required and fears of future political uncertainty, C.R.A. want an agreement to cover exploration and mining rights and obligations and future conditions affecting the company.
• Main concessions proposed
(i) 3 year tax holiday;
(ii) extension of accelerated depreciation provisions to apply to full capital expenditure;
(iii) guarantees against discrimination and undue imposts;
(iv) a ceiling to the percentage of taxable income which may be required to be paid to the Administration;
(v) extended exploration and mining titles;
(vi) provision of hospital, school, police and telecommunication facilities.
• Main obligations proposed
(ii) royalty of 1¼% to be paid from commencement of production;
(ii) when taxable income is forthcoming increasing payments to Administration over four years until ceiling 50% of taxab1e income (after the copper exemption deducted, effectively 40%) is payable;
(iii) application for a mining lease by 31/12/1971 and export of concentrates by 31/12/1976 at a cost of up to $100m.;
(iv) if economically and technically feasible a smelter to be built;
(v) feasibility study of processing beyond smelter stage;
(vi) construction of dams, power station, roads, port, town;
(vii) offer of option on 20% equity capital to Administration.
Treasury Attitude
• Prefer general tax and other conditions to apply together with a ‘sliding scale’ royalty
• object in principle to legislating for income tax provisions for one taxpayer
• see a tax holiday and extension of accelerated depreciation provisions creating undesirable precedents for Australia
• regard payment of additional income tax as moral breach of double tax agreement with U.K.
Overseas Tax Precedents
’ Negotiating a separate deal for a large company in under-developed economy not unusual
’ Middle East oil and bauxite mining in Jamaica, Surinam and Sierra Leone
[ matter omitted ]
[NAA: A452, 1967/1333]