The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Peter Costello

Peter Costello

Treasurer

11 March 1996 - 3 December 2007

Transcript of 11/02/2005

Press Conference
Treasury Place, Melbourne

Friday, 11 February 2005
10.45 am

SUBJECTS: Xstrata/Western Mining Resources Limited; Charles and Camilla; Budget

TREASURER:

After considering an application by Xstrata, an application to acquire shares in Western Mining Resources Limited, which I have considered under the Foreign Acquisitions and Takeovers Act 1975, I have decided that the Australian Government has no objection to the proposed acquisition provided that the corporation complies with a number of conditions.

The conditions that the corporation will be required to comply with relate to the mining and export of uranium from Australia, the headquarters and executive boards of various divisions of the company, exploration requirements in relation to the company, disclosure requirements in relation to exploration and consultations on the terms of marketing arrangements which Xstrata proposes to enter into with third parties in respect of uranium.

Those conditions are set out in Attachment A in my release of today.

In addition to that, I have received a letter from the Chief Executive of Xstrata indicating that Xstrata is engaged in identifying an Australian resident to be invited to join the international board, indicating that it will make every effort to ensure the information held in foreign jurisdictions will be made available to Australian regulatory authorities and confirming the continuation of executive boards and divisions in respect of coal and copper and the establishment of such in respect of nickel here in Australia.

This is obviously a very large bid. I make it clear that whether or not the bid is successful is a matter for the shareholders. The shareholders are being offered a price for their shares. Whether they sell is up to them. Whether they decide to hold their shares or in fact whether somebody else decides to give them a better offer, it will be their decision.

Some of the objections that have been raised in the press and elsewhere, relate to different matters, but the principal one related to the uranium which is at Olympic Dam in South Australia. I make it clear, having carefully considered the matter, that the mining and export of uranium is extremely closely controlled by state and federal law regardless of the ownership. In order to mine uranium you need a permit which must be granted by state governments. You need environmental permits which must be granted by Federal Governments. In order to hold or transport it you need a permit which must be given by the Australian Nuclear Safety Officer. In order to export it you need a permit from the Federal Government. In order to sell it to a foreign country it has to be approved by the Federal Government and the Federal Government must have an agreement with that country. In order to sell it you must provide your contracts to the Department of Industry, Trade and at any point in the process – the mining, transportation, the export or the sale – requires government approval, in fact multiple government approvals. This applies regardless of who actually owns the resource.

These would apply whether it was owned by Western Mining, whether it was owned by Xstrata or whether it was owned by anybody else. And having carefully considered those matters, I am satisfied that the exploitation and the sale of that resource will not be affected by a change in ownership.

The second point that I want to make, and we have also carefully considered this, is, this is a bid by Xstrata. Xstrata is not a new company to Australia. Xstrata in fact has about 8,400 employees in Australia. Xstrata mines coal, Xstrata has taken over the Mt Isa Mines and Xstrata has significant other assets in Australia. There has been a lot of commentary in the press about Glencore. I want to make it clear that this is a bid by Xstrata. Xstrata is a UK company and Xstrata is subject to listing requirements in the UK and Xstrata is squarely under disclosure rules which are imposed by the UK Stock Exchange. And the bid is being made by Xstrata, the UK PLC. Now if anybody subsequently tries to takeover Xstrata that would trigger a new application. But this is made in respect of Xstrata.

The third issue that was raised by some people is whether or not this would lead to a decline in exploration here in Australia. One of the conditions that I have imposed is that the exploration programmes, if this is a successful undertaking by Western Mining, would continue. And they would continue in addition to Xstrata’s existing exploration activities in relation to its current activities. As I said, Xstrata already has substantial holdings in Australia and has exploration in relation to that, so that would continue in addition to the Western Mining exploration.

So, in conclusion, having considered all of these matters, having imposed some conditions on the condition that those are observed, the bid will go to the market and the market will make its determination.

Are there any questions?

JOURNALIST:

Is the condition number 5 about marketing, does that reflect some concern on the part of the Government of Glencore’s role and relationship with Xstrata?

TREASURER:

Well let me make this clear, if you are selling uranium then the company that sells it needs the licence. So unless you are licensed you can’t sell as a marketing person. It is only the company with the licence. But just to ensure that everybody is very clear and very aware of who is marketing then condition number 5 makes it incumbent on Xstrata to notify the Department of Industry, Tourism and Resources.

JOURNALIST:

Are you concerned about the relationship with Glencore, is that why you have made it so clear about…?

TREASURER:

I think it is important that we have full information, and we will have full information just to ensure that the company that is responsible for the marketing, particularly in relation to uranium, is Xstrata itself.

JOURNALIST:

What type of information that you mentioned that was potentially held offshore are you referring to in your earlier comment?

TREASURER:

Well, as I said, this is a company which is listed on the UK Stock Exchange. It is obliged to make full disclosure in accordance with the disclosure requirements of the UK. The company is a tax resident in Switzerland. Now we have very robust tax laws which are directed to prevent transfer pricing and we have thin capitalisation laws which are directed at preventing transfer pricing. I just want the company to be clear that it will assist Australian regulatory authorities if the Australian regulatory authorities want to make any investigations.

JOURNALIST:

What assurances has Xstrata given you that it won’t try and (inaudible)?

TREASURER:

That it won’t…

JOURNALIST:

That it won’t try and expand uranium?

TREASURER:

That it won’t try and expand uranium mining? Well we would like it to expand uranium mining. We are not against expanding uranium. We would not be looking for assurances that it won’t expand, we would rather hope that it would expand subject to all of our controls of uranium. This is a wonderful resource which is owned in Australia and subject to all of our controls. We would rather hope that it would expand the mining and exploration.

JOURNALIST:

On the exploration and the headquarters conditions and so on, what kind of enforcement can you undertake to make sure that those things happen?

TREASURER:

Well if they breach the condition then the approval is void.

JOURNALIST:

But if they already own the company you can’t make them sell it can you?

TREASURER:

Well we would have very demanding powers.

JOURNALIST:

Well can you spell those out please?

TREASURER:

Well we have powers in relation to divestment and forcing divestment. We have very substantial powers.

JOURNALIST:

And you are prepared to use those in this circumstance?

TREASURER:

Absolutely. We will use all of the powers that are available. If you breach a condition of approval in relation to property and assets in Australia, you can be subject to divestment.

JOURNALIST:

What message are you hoping to send to international investors particularly in the way you rejected Shell’s bid a couple of years ago?

TREASURER:

Oh look, every application has to be considered on its merits and I want to say to you this involves an extremely exhaustive process and a great deal of work. Now in relation to the Woodside bid, it was my view that if Shell owned Woodside then it would have a conflict of interest because it owned other projects which were competing with the North West Shelf for large international contracts. And I think we made the right decision there because it was Woodside that was able to achieve 20 year contracts in China and it competed in that bid against some other fields that Shell had interests in. Now in relation to this particular bid, I don’t think there is a risk in this particular bid that Australian resources will be underdeveloped. I think there is a possibility that they will be developed more extensively, and I hope that they are developed more extensively as I said. We are not trying to restrict the development of Olympic Dam, we would rather hope that Olympic Dam is developed to its full capacity. Now all of that is subject to approvals for mining, approvals for transport, approvals for export, approvals of the contracts, approval of the countries to where it goes to. But if you can manage to satisfy all of those things then exploiting the resource would be good for Australia, it would be good for our trade and it would be good for employees. So you look at each case as it comes up. You consider all of the matters that are put to you. There are extensive submissions that have been put and considered and you come to the decision which you believe to be in the national interest.

JOURNALIST:

Are you happy that Xstrata will pay full tax in Australia on its assets?

TREASURER:

Well we will ensure that Xstrata pays full tax on its Australian income. Absolutely.

JOURNALIST:

(inaudible)

TREASURER:

I can give you that undertaking that the Australian Taxation Office will be ensuring that Australia (sic) pays full tax on its Australian income in respect of its Australian mining operations. Now when you derive income in Australia, that income that you have derived in Australia is taxable under Australian income tax laws.

JOURNALIST:

Treasurer - BHP and Rio Tinto - would they also have to face these foreign interest hurdles (inaudible)?

TREASURER:

They might if they were deemed to be foreign corporations, they might. I haven’t applied my mind to that.

JOURNALIST:

Could they, if they were deemed to be foreign corporations, could they take it from this Treasurer that they would also be approved?

TREASURER:

They would have to apply and have to be considered on its own merits.

JOURNALIST:

Did you take into account the fears of some of your backbench of Xstrata’s operations in WA and some of the criticisms there? Did you take that into account?

TREASURER:

Yes. I have taken all matters that have been put to me into account.

JOURNALIST:

And you found them not to be worthy of stopping the bid?

TREASURER:

Well I found that after considering them all they did not constitute grounds whereby this bid should be blocked on national interest considerations. Anything else?

JOURNALIST:

Just one. I just wanted to ask you in regards to the warship contracts. Will a decision be made…?

TREASURER:

The which contract?

JOURNALIST:

The warship contract. Do you know when a decision will be made and is it true that South Australia appear to be edging ahead in the battle for the contract?

TREASURER:

No and no.

JOURNALIST:

Thank you.

JOURNALIST:

Another matter of national interest – the perhaps national preoccupation – Charles and Camilla. As a senior republican, what is your reaction?

TREASURER:

Well I wish them well. He has announced that he is getting married and that should be a happy occasion and I wish the marriage every success between Prince Charles and Camilla. I think we all wish them well. They have obviously been together for a long time and to be finally able to take the step of marriage is no doubt a great relief for them and I hope that it is a happy and long-lasting marriage. He is of course the future King of Australia and so we take an interest in him and we wish him all the best.

JOURNALIST:

Are you relieved that she won’t be the future Queen of Australia?

TREASURER:

Well I don’t quite know how all of the law works as to when you become a queen and when you don’t. I am pretty sure I know how the law works as to when you become the King, if you are the firstborn you become the King. I am not sure how marriage gets into it and because of course he is the Queen’s firstborn son he will become the King of Australia under current constitutional arrangements.

JOURNALIST:

Treasurer just on the Budget outlook, the Prime Minister was on radio this morning warning that it is going to be a tight Budget and urging chief executives to show restraint themselves in, for example, for wage increases on top of productivity. How tight is the Budget looking?

TREASURER:

Well it is important I think that we have a tight Budget. It is important that we make sure that we fund all of our expenditures which will be considerable in the normal areas but in addition to those, of course, the tsunami relief, in addition to that of course the ongoing commitments in Iraq and the war against terrorism and that we keep the Budget in surplus. That is my aim to keep the Budget in surplus so that the Government doesn’t detract from savings but the Government builds it up.

JOURNALIST:

Mr Costello your own union with the Lodge looks like being off until 2007 at least. How do you feel this week about that sort of news?

TREASURER:

Oh look, we get these sorts of questions on a daily basis and the answer is always the same. Which is that I am absolutely committed to discharging the roles and responsibilities that I have. If future opportunities come up we will look at them when they come.

JOURNALIST:

Are you concerned that the housing figures that are out today, I know that you don’t have them yet, are you concerned that the economy might be overheating given some of (inaudible)?

TREASURER:

Well let’s wait to 11.30am before we comment on the housing figures.

Thank you all very much.