Tax fight roils rare earths producer
A tax fight put a rare earths company on the brink of collapse just as rare earths prices started to soar.
The rare earths company in the middle of a $24 million dispute with the Australian Tax Office over research and development rebates has revealed that the fight put it on the brink of collapse just as rare earths prices started to soar.
Northern Minerals managing director George Bauk told T he Australian that the company had engaged with Prime Minister Scott Morrison and Resources Minister Matt Canavan in an attempt to resolve the issue, which he said had threatened the future of the company’s Browns Range rare earths project in Western Australia’s East Kimberley region.
The dispute, which saw the Tax Office and AusIndustry not only refuse Northern an expected $10.8m rebate but also hit the company with a requirement to repay $13.4m in previous rebates, left Northern on the brink just as the broader rare earths sector was turning in its favour.
“We nearly lost this whole thing at the start of the year because of the R&D,” Mr Bauk said.
“I can’t tell you how close we were.”
Northern Minerals is, along with Wesfarmers’ $1.5bn takeover target Lynas Corp, one of only two Australian companies involved in the production of rare earths.
It started production at its pilot processing plant at Browns Range a year ago, and has since been working to perfect the complex processing method ahead of what it hopes will eventually be a substantial scaling-up of the project.
The company this week hosted separate delegations of media and government representatives at Browns Range as it attempted to highlight both the progress it has made and the challenges it is facing with the plant.
Browns Range, where Northern has spent $210m to date, looks like a mining project and smells like a mining project: the processing plant features many of the components one would typically see at a gold or base metal plant, and has a larger footprint than many conventional operations around the state.
But Mr Bauk insists that the plant is effectively one big laboratory where the company is constantly adjusting and even replacing various components to try to understand how to unlock the rare earths.
Rare earths processing is particularly complex and there is a very shallow pool of expertise and experience to draw on. Northern is effectively learning as it goes.
“This is the first of its type in the world,” he said.
“We have not proven it. If this was proven technology, I’d be sitting here telling you what our cost per kilo was, what production is, what our run rates are, what our profitability is likely to be. I’m not hiding it, because we are an R&D site and we are still testing and improving it.”
Earlier this month Northern reached an agreement with the ATO allowing for the repayment of $13.4m of previous rebates in monthly instalments over the next two years. The ATO has also been granted security over Northern’s assets as part of the agreement.
But Mr Bauk confirmed the company was appealing the decision in what could be a protracted legal process.
The dispute is not the first unexpected cash shortfall to hit Northern. Last year it was blindsided when an offtake partner did not deliver a $10m prepayment as promised. Extra funding that had been pledged out of China was also delayed amid the country’s crackdown on international money transfers.
It has been able to secure just over $40m in fresh funding this year, which will help it repay some debt and manage its agreed ATO repayment obligations.
The outcome of the R&D dispute will determine just how quickly Northern can progress Browns Range.
Mr Bauk believes the world hasn’t yet seen what a true rare earths supply crunch really looks like.
“Sometimes a crisis has to happen before action happens,” he said.