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The silly belief that overseas-owned companies send all their profits overseas has bubbled away in the background for decades.
Among some, it's a mantra and regularly gets hauled into the overseas ownership debate, especially when a contentious issue like mining arises. Those who are currently braying the mantra betray a fundamental, if not disturbing, misunderstanding of what a trading entity does with its dollars.The silly belief is easy to refute simply by looking at the dollars, and where they go. In New Zealand, thankfully, an overseas-owned company must file its annual accounts with the Companies Office.
One such firm is Newmont Waihi Gold, owner and operator of the gold mine at Martha Hill which is beneficially owned in the United States. The latest available audited accounts (2008) tell us Newmont's total revenue from running its mine was $188.11 million. Out of that sum and like any business, Newmont had some rather large bills to pay. Its wage bill was $10.69m (5.6 per cent of trading revenue). Many of its employees live in Waihi and so presumably spend some of their wages in the town. On the wages front too, the company spent another $32.8m (17 per cent) with various contractors to mine and drill the ore. The firm also had to buy raw materials and consumables to keep the mine running and probably to process the ore into gold. They cost $26.8m (14 per cent) and repairs and maintenance another $7.12m (3 per cent).
With these and other items, the cash paid out to run the operation was $105m, including a $1.1m royalty payment directly to the Government. From its trading turnover of $188.11m, Newmont therefore paid a total of 55 per cent into its local and wider New Zealand community.The mine's operating expenses totalled $144m (including the accounting mysteries of depreciation and amortisation). This gave a profit before tax of $44.57m, on which $13.3m in income tax was paid leaving the owners with $31m in tax-paid profit. So, what happened to the profits around which is wrapped the mantra we started with? From the $31m tax-paid profit available, the company sent its US owners $11.7m (37 per cent) by way of a dividend. That left $19.56m in the business. But before that happened about $105m in cash was distributed locally. Elsewhere in the accounts it is stated that a total of$33.45m is pledged by the company by way of rehabilitation bonds when mining finishes at the site.
This 100 per cent overseas- owned company therefore spends a great deal in New Zealand. It pays wages in New Zealand, pays a royalty in New Zealand, pays income tax in New Zealand, and posts rehabilitation bonds in New Zealand. Overseas-owned Newmont Waihi sent not all of its profits overseas: just 6 per cent of the mine's income was paid individends to its American owners, which was just 37 per cent of its after-tax earnings.
The debate about mining should be an informed one. To have that debate, we need facts, not mantras.
* Chris Rennie is a partner in Carter Price Rennie Ltd. He cheerfully toils in the vineyards of capitalism, including thoseof overseas-owned companies. There are no specific client interests in the article.--------------------The Press, Copyright of Fairfax New Zealand Limited 2009, All rights reserved.Provided by ProQuest Information and Learning Company. All rights Reserved.