Australian mining 'super tax' has miners runningPublished by MAC on 2010-05-07
Source: Telegraph, AAP, AP
Prime Minister Kevin Rudd's proposed 'super tax' on miners has certainly got the companies raging. Like rich celebrities in a UK election, they are threatening to leave the country if they are over-taxed.
Although the tax still needs to be properly legislated and will not come in until 2012, at least one miner, Clive Palmer, who is Australia's fifth richest man, has said he will cease all drilling work in Western Australia. Interestingly, he talks about shifting to Africa just as Tanzania is also legislating tax increases for miners. (see http://www.minesandcommunities.org/article.php?a=10087).
Mining shares tumble on Australian tax plan
By Rod McGuirk
3 May 2010
CANBERRA, Australia - Shares of mining giants BHP Billiton and Rio Tinto tumbled Monday after the Australian government proposed a new 40 percent tax on the booming profits of resource companies.
The big miners' losses dragged the Australian market down half a percent by close of trading after Prime Minister Kevin Rudd announced Sunday that the tax would be introduced in 2012 and raise an additional 9 billion Australian dollars ($8.3 billion) per year.
The new tax targets miners that have made bumper profits as burgeoning demand from manufacturers in China and India pushed up the price of iron ore and other commodities.
The mining industry has warned that such a tax would stall investment or shift it to other countries.
Shares in BHP Billiton, the world's biggest miner, fell 3 percent to close on Monday at AU$39.53 while Anglo-Australian rival Rio Tinto shed 4.3 percent to finish at AU$69.00.
Both made up some ground from morning losses, while miners across the board lost AU$8 billion in market capitalization for the day.
"There has been quite a bit of concern from the mining companies the proposed ... tax is going to slash profits and cost jobs so that is where we have seen most of the weakness," CommSec stockbroker Juliette Saly said.
After the tax announcement, BHP Billiton said the measure would raise the total effective tax rate on the company's profits from 43 percent to 57 percent.
"These proposals seriously threaten Australia's competitiveness, jeopardize future investments and will adversely impact on the future wealth and standard of living of all Australians," BHP Billiton chief executive Marius Kloppers said in a statement.
BHP Billiton posted profits of $6.14 billion for the six months ending Dec. 31, more than double the result of a year earlier.
Rio Tinto's Australian managing director David Peever said the new tax would make the Australian mining industry the highest taxed in the world and less competitive.
Rio Tinto reported profits of $4.9 billion for 2009, up 33 percent over the previous year.
Peever said the strength of the mining sector had kept Australia out of recession at the height of the global financial crisis.
"But the same industry is now being portrayed by the government as not paying its way," he said in a statement.
The government plans to use the added mining revenue to underpin economic reforms that would reduce the overall corporate tax from 30 to 28 percent and increase Australian workers' retirement savings.
Analysts say the reforms are aimed at attracting votes for the ruling Labor Party which will seek a second three-year term in government at elections due late this year.
Rudd said he expected the mining industry would campaign against him ahead of the elections. He said BHP Billiton was only 60 percent Australian-owned and Rio Tinto was less than 30 percent Australian.
"That means these massively increased profits ... built on Australian resources are mostly ... going overseas," Rudd told Australian Broadcasting Corp. radio on Monday.
The tax legislation would need the support of some opposition senators to pass the upper house, where Labor only holds a minority of seats.
The main opposition Liberal Party has warned the new tax has the potential to kill Australia's mining boom.
Mining companies can cope with Australia's demand for a slice of the pie
Australia has just become the world's most-taxed mining economy after introducing a 40pc super-tax.
By Garry White
3 May 2010
It will hit mining groups hard, but earnings were about to expand strongly anyway. Although a setback, there should still be enough profit to go around.
By far the most exposed is BHP, which has 51pc of its assets in the country. Rio Tinto has 35pc of its assets in Australia and New Zealand, while for Xstrata this figure is 33pc. Among the four main mining groups, Anglo American is least exposed but it does have a significant Australian coal business.
The tax was no doubt prompted by a sharp recovery in the price of bulk commodities. Bulks include iron ore, thermal coal, which is used in power stations, and metallurgical coal, used in steel-making. Iron ore prices have risen 90pc and coal prices are up by about 50pc.
To get a full overview of earnings prospects for miners, as well as considering location, it is important to look at how much exposure they have to these bulk commodities. Despite the taxes, companies with significant bulk earnings will still see strong earnings in 2010 and 2011.
Miners say they will flee Aussie tax
4 May 2010
The world's top miners have said they will scale down their operations in Australia if the Government goes ahead with plans to slap a 40 per cent tax on mining profits.
According to mining chiefs at BHP Billiton, Rio Tinto and Xstrata, the plans by the Australian government will hamper long-term investment in the country, while ruining its global competitiveness.
London's markets are in for a rough ride today, as mining companies make up 14 per cent of the FTSE-100 index. More than $14bn (£9bn) of value was wiped off mining stocks by Australian investors yesterday, and shares in London listed miners, including BHP Billiton and Rio Tinto, are expected to follow suit.
Mergers and acquisitions activity in Australia's mining sector could also be jeopardised by the tax. According to analysts Peabody might pull its $3.7bn bid for Macarthur Coal after its shares dropped 9.5 per cent, while there are also doubts over BHP and Rio's proposed Australian iron ore production joint venture.
The Australian government has made the tax a centrepiece of its re-election agenda this year and is set to come into effect from July 2012.
In the process it has picked a fight with the country's most important single industry, which accounts for about half of exports. The money from rich miners will be used to boost workers' pension funds.
Prime Minister Kevin Rudd, said Australians had been short changed during a 10-year resources boom, in which profits soared by A$80bn (£49bn), while only A$9bn flowed into national coffers. Glyn Lawcock, at UBS estimated the tax would cut Rio's 2013 earnings by 21 per cent and reduce BHP's by 17 per cent.
Miner shifts to Africa ahead of new tax
4 May 2010
An iron ore miner has blamed the federal government's new super profits tax for its decision to cancel planned exploration projects in Australia and move to Africa.
The announcement comes as Treasurer Wayne Swan engages in a spat with Australia's fifth richest man, Clive Palmer, over a plan to adopt a key recommendation of the Henry tax review.
West Australian Premier Colin Barnett fears more mining companies will leave Australia if the flagged tax on super profits in the resources sector is enacted.
Perth-based iron ore miner Cape Lambert today announced it would cancel planned exploration works in Western Australia.
"I've made the decision now: I'm ceasing all drilling work in Western Australia that we were planning to do later this year in one of my mines up in the Pilbara," the company's executive chairman Tony Sage told ABC Radio.
"What is the point if you're going to get slugged an extra tax?"
Mr Sage said the resources company would instead shift its investment dollars, earmarked for Australia, to four projects in Africa.
The federal opposition's deputy leader Julie Bishop told Sky News the Cape Lambert decision would be the first of many such announcements to come.
Mining magnate Clive Palmer labelled Mr Swan a fool for wanting to levy a 40 per cent tax on profits made from non-renewable resources from July 2012.
Mr Palmer said he would consider taking projects like coal developments offshore to places like Indonesia where he would be taxed at only 20 per cent.
"When I was taxed at 30 per cent I might have done it in Queensland, but now I'm going to be taxed at 70 per cent I'll go ahead and do it in Indonesia," he told reporters on the Gold Coast.
"So, the treasurer is just a fool. That money he thinks he's getting, he's not going to get more money - he's going to get less money."
Mr Swan hit back, questioning Mr Palmer's motives as he began talks with the mining industry.
"Clive Palmer acts in the interests of his own fat pockets. He doesn't act in the interest of the Australian people, and it's my job to act in the interests of the Australian people and make sure they get a fair share," Mr Swan told reporters.
Mr Barnett called on the federal government to abandon its plan for the Resource Super Profits Tax, telling parliament the 40 per cent levy was "too high".
Earlier, he said the tax plan, announced on Sunday, would jeopardise future projects in Australia.
"I have been struck over the last 24 hours by the numbers of both larger and smaller companies that are clearly reviewing investment decisions," he told ABC Radio.
Commonwealth Securities chief economist Craig James said uncertainty about whether the Senate would pass the government's proposed tax had created uncertainty for investors.
Rio Tinto shelves billions in projects
Andrew Burrell and Dennis Shanahan
6 May 2010
MINING giant Rio Tinto has shelved plans to spend $11 billion expanding its massive iron ore operations in Western Australia because of the wave of uncertainty sparked by the Rudd government's proposed tax on super profits.
As Kevin Rudd faced down industry executives in Perth for a second day yesterday, it also emerged that fellow miner BHP Billiton was reassessing the viability of its iron ore and coal projects in NSW, Queensland and Western Australia.
And Origin Energy said yesterday the proposed 40 per cent "resource super-profit tax" would push up "retail energy prices" by making gas and coal to drive power plants more expensive. Origin said "wholesale energy prices are also likely to increase with any increase in resources tax".
After attending a meeting with resources industry leaders on Tuesday night and holding a breakfast briefing with smaller miners yesterday, the Prime Minister refused to describe the 40 per cent rate as non-negotiable but said it was "about right".
At the "robust" dinner, mining executives told Mr Rudd his plans had done "irretrievable damage" to the Australian resources sector, were driving investment overseas and wiping out the retirement funds of thousands of Australian shareholders who could not now "afford to retire". Shares in Australian mining companies shed more than $16bn this week, with heavy falls by BHP and Rio in London contributing to a plunge on global markets overnight. Shares in BHP, Rio and Andrew Forrest's Fortescue Metals Group stabilised yesterday as analysts said the selling had been overdone.
Mining executives at the meeting also accused Mr Rudd of deceiving the public by calling the tax a "super-profits" tax.
Mr Rudd is standing by his plan but has agreed to meet the mining companies again next week. It is understood Treasury is already revising its modelling on the implementation of the tax.
After meeting mining executives in Canberra, Tony Abbott said the opposition would oppose the new tax, although there was little likelihood of any legislation coming to parliament before the election, expected later this year.
West Australian Liberal Premier Colin Barnett yesterday warned of a flight of capital from his resource-rich state as companies weighed up whether to shift their investments overseas.
"Projects that I thought were absolutely certain, people are saying we are now redoing the sums," the Premier said.
Chinese companies have reacted to the proposed tax by shelving plans for investment in Australia's resources sector and looking instead to Africa, Asia and South America. Canadian finance minister Jim Flaherty said yesterday the Australian tax could help boost mining investment in his country.
The Australian has learnt that at least one major fundraising by a Chinese company for investment in an Australian mining company has been put on hold as analysts branded the country risky.
Rio Tinto Iron Ore chief executive Sam Walsh revealed yesterday that the group's plans to boost Pilbara iron ore production capacity from 230 million tonnes a year to 330 million tonnes by 2015 had been put on hold as the company digested details of the new tax. In February, Rio Tinto chief executive Tom Albanese said he hoped the expansion - aimed at meeting rising Chinese demand for iron ore - would begin by the middle of this year.
Analysts have forecast the expansion, which would generate thousands of jobs, would cost Rio at least $US10bn ($11bn).
Since the Rudd government announced the controversial tax on Sunday, analysts have speculated that Rio may focus instead on its investment in the Simandou iron ore project in Guinea, West Africa. Mr Walsh, who was at the dinner meeting with Mr Rudd on Tuesday, said yesterday Rio needed clarity on how the tax would be applied before it could commit to new projects.
"We've got our projects on hold while we try to understand the ramifications of a 40 per cent increase in taxes," he said.
"When we evaluate a project, we are looking across the spectrum of peaks and troughs in demand because we're looking over a 20- or 25-year period.
"And the concern is that people are looking at this now in boom times, not realising that sooner or later we're going to be in tough times and it's going to be very, very tough for projects."
Mr Walsh said he did not know how long it would take until the company understood the details of the new tax.
"We don't know if it's (by) the end of the consultancy period we'll have certainty, or do we have to wait until after the election, or do we have to wait a year until the legislation is actually enacted?" he said. "Now, 12 months is a long time for the organisation to be on hold, waiting to hear what the future holds."
It is understood there are concerns within Rio that its Argyle diamond mine in the Kimberley region of WA could also become a casualty of the new tax. The mine is a major employer of indigenous people in the region and has been used by the Rudd government as a model for engagement between the mining industry and Aboriginal communities.
Mr Walsh yesterday praised Mr Rudd for listening to the miners' concerns on Tuesday.
"I actually think he was pretty brave to wade into a dinner with 25 angry miners," he said. "He wants to engage, he wants it to be an active involvement and consultation process, and I've got to give him 10 out of 10 for that."
BHP Billiton's metallurgical coal president, Hubie van Dalsen, told analysts in a presentation yesterday that the company's coal projects in NSW and Queensland had been placed under review since the tax announcement.
When asked whether BHP was also reviewing its iron ore expansion projects in WA, a spokeswoman pointed to an email sent by chief executive Marius Kloppers to staff on Tuesday in which he said the tax would make investing in Australia less attractive.
"As you know, when large resource companies like ourselves make investment decisions on where to invest, one of the key influencers has been Australia's reputation for providing a stable and competitive taxation regime," Mr Kloppers said in the email.
"The proposed new tax tears down this reputation."
Mr Rudd said yesterday he had a "strong, robust exchange" with mining company executives over the tax. "They were very forthright in putting their views and their concerns about the super-profits tax that we're proposing," he told a Perth radio station.
"I was equally forthright in explaining why we believe this is necessary."