State govt offers relief for troubled Australia iron ore miners

SYDNEY, Dec 19 (Reuters) - Beleaguered Australian iron ore miners will be offered a rebate on government royalties in an attempt to combat the impact of low ore prices, Western Australia state premier Colin Barnett said on Friday.

The move is likely to have its greatest impact on Australia's legion of small miners that have been forced to lay off workers and rethink capital spending to stay afloat.

Iron ore has sunk to the lowest price in nearly five years as mass expansion work in Western Australia by sector leaders Rio Tinto (Xetra: 855018 - news) (RIO .AX) and BHP Billiton (NYSE: BBL - news) has left the world awash with too much supply.

Miners could be eligible for a 50 percent rebate in iron ore royalties for up to 12 months, subject to the iron ore price remaining below an average of $90 per tonne over the period, according to the plan unveiled on Friday.

"This is a responsible and carefully considered move and comes on the back of a 48 percent fall in iron ore prices since January 1," Barnett said.

However, the relief is only temporary. Miners are required to repay the rebate over a period of up to two years, according to Barnett.

Iron ore mining accounts for 56 percent of the State's exports and employs more than 61,000 people, according to Barnett.

BHP and Rio Tinto have been publicly criticised by Barnett for increasing the supply of iron ore in a weak market.

Rio's iron ore division, the second-biggest in the world, will receive the lion's share of next year's roughly $8 billion capital spending budget as it pushes to lift annual output 20 percent to 350 million tonnes by 2017 and capture market share abandoned by rivals.

Rio Tinto Chief Executive Sam Walsh has set a target to deliver iron ore to China for $35 a tonne by 2020, down from $47 a tonne in 2012, ensuring the business, which made up 92 percent of earnings in the first half of 2014, remains profitable.

Iron ore last traded at $68.00.

Atlas Iron, Fortescue Metals Group and BCI Iron have each cut jobs and initiated austerity programs in the past month.

"Companies have just about reached the limit of cutting costs. The last thing we want to see is more retrenchments or closures," said Simon Benison, chief executive of the Association of Mining and Exploration Companies trade group. (Reporting by James Regan; Editing by Gopakumar Warrier)