Much of the discussion surrounding fast-track applications for new or expanded mining projects has centered on their environmental consequences. However, the economic rationale – growth and investment – that the government uses to justify these projects is rarely examined in depth.
The environmental and economic aspects are inherently linked. According to Section 85(3)(b) of the Fast Track Approval Act, a project can be rejected if its negative impacts outweigh its regional or national benefits. Therefore, the economic claims made by proponents of these mining proposals must be thoroughly evaluated. If the benefits fail to materialize, the environmental costs become harder to justify.
With over 35 years of experience researching and advising on mining and mineral policy in the Pacific, I have identified several key economic realities of the mining industry.
First, the majority of capital expenditure – the cost of setting up operations – is often spent overseas. For example, Trans-Tasman Resources, which is seeking approval for seabed mining off the Taranaki coast, plans to spend 95% of its $1 billion construction budget offshore. This includes manufacturing a large, advanced barge and two 450-tonne seabed crawlers in China. Additionally, under the government’s Investment Boost policy, 20% of this investment qualifies as an immediate tax deduction, effectively transferring funds offshore to foreign investors.
Second, projections of annual revenue, operational costs, taxation, and profit distribution must be treated with caution. Variability is common in the mining sector due to fluctuating commodity prices, high depreciation rates, unexpected events, and changing operating costs. This uncertainty also applies to average annual tax and royalty figures. Mining companies cannot be relied upon to provide stable government revenue. For instance, OceanaGold, a foreign-owned company and New Zealand’s largest gold producer, paid no corporate income tax in 2021 or 2023 despite generating hundreds of millions of dollars in gold sales.
In essence, the country may receive only a small portion of the value of its own natural resources. Unlike industries such as forestry, dairy, wine, or tourism, mining offers no second chance – once the resource is extracted, it is gone forever.
If New Zealand chooses to expand its mineral extraction activities, there are four key measures that could help ensure the country benefits more equitably:
1. **Adopt international best practices**
Over the past three decades, the global mining industry has developed best-practice guidelines, such as those from the International Council on Metals and Mining. These standards promote ethical behavior, strong environmental performance, inclusive stakeholder engagement, and biodiversity conservation. Initiatives like the Extractive Industries Transparency Initiative also allow governments and citizens to monitor the economic contributions of mining and oil companies.
2. **Secure a fair share of resource value**
Currently, mining companies pay a 2% royalty on the value of minerals produced (or 10% of net profits, whichever is higher), but this is insufficient given the volatility of commodity prices and operational costs. A better approach might involve calculating the total export value of each mining operation annually and requiring a mandatory portion – perhaps 50% to 66% – to remain within New Zealand. This would include local employment, operational expenses, taxes, and royalties, with an additional levy applied if necessary to meet the target.
3. **Mandate community benefit agreements**
Many countries use regional development agreements to return a portion of mining revenues to the communities where extraction occurs. While some New Zealand mines have voluntary corporate social responsibility programs, these are not community-led or funded directly from mining royalties. Regional Development Minister Shane Jones has proposed redirecting more mining royalties to regions like the South Island’s West Coast, which could serve as a model.
4. **Establish a sovereign wealth fund**
Norway and Alaska have successfully created multi-billion-dollar trust funds by setting aside a portion of mining and oil revenues. These funds support national budgets, reduce taxes, and ensure intergenerational equity in resource wealth. Although New Zealand’s current extractive sector is smaller, a local sovereign wealth fund could grow over time and provide long-term benefits from non-renewable resources.
Without careful consideration of the economic implications, New Zealand risks gaining few long-term benefits from its mineral resources while still facing the environmental consequences of extraction.
— news from The Conversation
— News Original —
The hard questions NZ must ask about the claimed economic benefits of fast-track mining projects
Much of the debate about the fast-track applications by a number of new or extended mining projects has, understandably, focused on their environmental impacts. But the other side of the equation – economic growth and investment, the government’s rationale for new mines – is rarely interrogated.
In fact, the environmental and economic debates are inseparable. Section 85(3)(b) of the Fast Track Approval Act allows for project applications to be declined if any “adverse impacts are sufficiently significant to be out of proportion to the project’s regional or national benefits”.
So, the claims of economic benefits from the current round of proposals need to be scrutinised closely. If those benefits don’t stack up, any adverse environmental impacts become harder to justify.
Having spent more than 35 years researching and consulting on mining projects and mineral policy in the Pacific, I have noted several important economic characteristics of the mining industry.
First, the capital spend – the setup cost of an operation – is typically largely spent offshore. In the case of Trans-Tasman Resources, currently seeking to fast-track seabed mining off the Taranaki coast, this amounts to 95% of the $1 billion construction estimate. This will largely be spent on the building in China of a huge, sophisticated barge and two 450-tonne seabed crawlers.
The government’s recent Investment Boost policy will also mean 20% of this investment is an immediate tax deduction for the company – money lost offshore to the foreign investor.
Second, any estimate of annual revenue, operational costs, taxation and distribution of net profit has to come with a caveat. Annual variations in all these factors are typical across the sector due to commodity price volatility, high rates of depreciation on capital expenditure, unexpected events, and exposure to changing operating costs.
The same applies to average annual figures for taxes and royalties. Mineral resource companies cannot be regarded as stable sources of government revenue. For example, foreign-owned OceanaGold – the largest gold producer in the country and operator of the MacRaes Flat and Waihi mines – paid no corporate income tax in 2021 or 2023 on gold production worth hundreds of millions of dollars.
Essentially, the country can often receive a minimal share of the value of its own natural resources. Unlike forestry, dairy, wine, tourism and other major sectors, with mining we don’t get a second chance: when the resource is gone, it’s really gone.
If New Zealand does decide to expand mineral resource extraction, however, there are four things that could be done to ensure the country benefits more.
1. Adopt international best practice
Over the past 30 years, the international mining sector has developed a range of best-practice guidelines, such as those developed by the International Council on Metals and Mining.
These have been adopted by leading global mining corporations elsewhere to ensure ethical behaviours, high levels of social and environmental performance, inclusive stakeholder engagement, and conservation of biodiversity.
International bodies such as the Extractive Industries Transparency Initiative also provide a means for signatory countries and their citizens to track the economic contributions mining (and oil) companies make.
2. Capture a fair share of resource value
Aside from being levied a small 2% royalty on the value of the minerals produced (or 10% of net profits, whichever is higher), mining companies are effectively treated like any other sector. But the price of mining commodities and revenues, and the operational costs, are highly volatile.
A better model might involve a simple calculation made each year to determine the total value of mineral exports from each operation. An agreed, a mandatory proportion – half or two-thirds, perhaps – would then be required to accrue within New Zealand.
This proportion of the value of the mineral resource exported should take into account local employment, locally sourced operational expenses, taxes and royalties. An additional tax could then be applied that brings the local share of the export value up to the agreed proportion, if needed.
3. Mandate a return to communities
Another common mechanism found in many countries is the community-level or regional development agreement. These exist at some New Zealand mine sites now, but they are not mandatory. They return a share of the value of the government’s take from the sector back to the communities or regions where the resource has come from.
While mining companies often make voluntary “corporate social responsibility” contributions to local communities, these are not community-led programs funded from a share of the mining royalties collected from the region.
Regional Development Minister Shane Jones has said he is looking at redirecting a greater share of mining royalties to the regions where mining takes place, particularly the west coast of the South Island.
4. Establish a form of sovereign wealth fund
Famously, Norway and the US state of Alaska have established hundred-billion-dollar trust funds by putting aside a proportion of mining and oil revenues.
These funds now support national budgets, lower or eliminate taxes, and provide a mechanism for the intergenerational transfer of mineral resource wealth.
New Zealand’s current oil, gas and mining sector is not of these magnitudes. But if the country does decide to significantly expand its extractive sector, we should be thinking about a “fair share” in intergenerational terms, too.
A local sovereign wealth fund might not be huge to begin with. But if it were used effectively, it could grow and deliver ongoing benefits from non-renewable mineral resources.
Without proper attention to the economic implications of mining, New Zealand risks being doubly worse off: few guaranteed long-term economic benefits from its own mineral resource, but still living with the inevitable environmental effects of those mines.