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ATO settles – Northern banks $10m and wipes off $9m debt

The Australian Taxation Office has thrown Northern Minerals a $10 million cash lifeline and wiped out a further $9 million in potential debt after settling a protracted research and development grant dispute that has played havoc with the company’s finances. The dispute revolved around which aspects of Northern Minerals’ Kimberley-based, heavy rare earths pilot plant were technically considered to be “R&D” and which were not.

The Federal Government’s Research and Development Tax Incentive offset scheme administered by the ATO, provides a 43.5 per cent cash rebate to companies that engage in R&D. Northern Minerals had previously accessed the scheme in relation to its Browns Range pilot plant in WA’s north before coming to blows with the ATO over the technical nature of the work being done there.

The dispute with the ATO had the effect of stopping ongoing payments, creating a sizeable debt to be repaid from previous allocations and disallowing past claims.

Northern Minerals confirmed this week that it had reached a settlement with the ATO, which would see the ATO pay Northern just over $9.9 million for past claims.

The net refund covers the company’s R&D tax offset claims for the 2017 and 2018 financial years and includes an agreed refundable R&D tax offset sum for the financial year ended 30 June 2019.

Northern Minerals has also been provided with a framework by the ATO that it will use to review the company’s R&D tax offset claim for the recently completed financial year.

The dispute lasted about two years and Northern negotiated with both the Federal Government’s industry advisory body, AusIndustry, and the ATO over the previously unresolved R&D Tax Incentive offset claims.

Whilst a lengthy period of time has passed from the date of lodgement of the 2017 and 2018 returns, the company is pleased that this matter has come to a close and we would like to thank all involved including the ATO and AusIndustry in reaching an amicable settlement of this dispute.

As a result of the settlement agreement, the company no longer has any outstanding amounts owing to the ATO relating to the dispute, which wipes off a further $9 million that Northern potentially owed to the ATO.

The move has drastically reduced Northern’s outstanding debt to only $5.2 million and its cash reserves will be bumped up by $9.9 million, which is due to be paid next month.

The settlement will take the company’s cash balance to more than $16 million based on its June 30 cash position.

The money will allow the company to ramp up its near-mine exploration efforts with a view to creating a large enough reserve to build a full-scale plant that is estimated to be some 10 times larger than the pilot plant.

If Northern can significantly increase the projected initial mine life of a full- scale operation at Browns Range courtesy of a successful exploration program, it will have the effect of improving the NPV and the potential to finance the full-scale plant.

The money will also be used to iron out the kinks in the Browns Range pilot plant process flowsheet.

The company has already partially restarted the pilot plant to conduct beneficiation circuit test work and other flowsheet testing including the plant’s hydrometallurgical circuit.

It is also proceeding with the construction and installation at the front end of the pilot plant of ore-sorting equipment, which has been identified as a game-changing, low-cost method of potentially doubling the ore feed grade.

The big challenge for Northern is to try to crack the product separation code. This will give it the ability to separate the myriad of different rare earths that are contained in its ore for sale separately to buyers around the world rather than as a mixed basket of goods. China currently produces about 98 per cent of the world’s heavy rare earths and pretty much controls the pricing and supply.

It is the only place in the world where product separation happens on a commercial scale

At this stage in its evolution, Browns Range is equipped to produce a mixed heavy rare earth carbonate. However, additional “midstream” processing to produce a dysprosium oxide or metal and terbium oxide or metal is the mountain that the company wants to climb.

Northern has launched a scoping study with US-based K-TECHnologies on the value-adding product separation technology and the viability of implementing it in WA.

Positive results from the separation test work could transform the Browns Range project into a “critical minerals” supplier because the dysprosium and terbium oxide and metal products not only fetch higher prices than a mixed carbonate but they also open the door to more potential end-customers.

Those markets include the growing electrical vehicle sector and military technology applications to name just two.

According to Northern, the US and Australia have expressed concerns about the monopoly China has on heavy rare earths supply. The Governments of the two allies have set up a “Critical Minerals Taskforce” to look at helping facilitate development of alternative heavy rare earths supply chains which augers well for companies like Northern.

With the slate now wiped clean with the ATO and the potential for future R&D rebates potentially worth millions reinstated, Northern now has the financial monkey off its back and is free to breathe new life into its ground breaking project that will be the only significant supplier of heavy rare earths outside of China when it hits its straps.

The market seems relieved too, as shares in Northern Minerals soared by as much as 17 per cent during trading today.

Is your ASX listed company doing something interesting? Contact: matt.birney@wanews.com.au

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