MAC: Mines and Communities

Rio Tinto worried Australian tax may give other countries ideas

Published by MAC on 2010-06-04
Source: Reuters

Prime Minister Kevin Rudd's proposed 'super tax' on miners is still causing the industry to vent its collective spleen in anger (See: Xstrata have added to the list of companies promising to cancel expansion if the tax pushes through.

Rio Tinto is one of the latest companies to comment, at their delayed Australian AGM. CEO Tom Albanese told shareholders, "we are concerned that other countries may see this as something they want to try out, too." That sounds almost like a challenge to other countries, many of whom have been reflecting on this issue. If other countries take this up as well, then where will the companies have to flee to? It appears that mining legislative issues are switching from the 90s 'race to the bottom' to a 'race to the top'.

Rio Tinto worried Henry Tax may give other countries ideas

The miner said, Wednesday it is concerned Australia's proposed super-profits tax could result in other countries following its lead

Victoria Thieberger


26 May 2010

MELBOURNE - Global miner Rio Tinto Ltd said on Wednesday it was concerned that other nations could follow Australia's lead by introducing a windfall tax on mining profits.

Australia's new super profits tax, due to come into effect in mid 2012, has angered the mining industry, which has warned it puts mine expansions at risk and could push investment overseas.

Uncertainty over the tax proposal has wiped billions of dollars off Australian mining firms' market value and added to pressure on the Australian dollar, which is leveraged to the Asian growth story and has lost 11 percent against the U.S. dollar since the tax was announced in early May.

"We are concerned that other countries may see this as something they want to try out, too," Rio CEO Tom Albanese told shareholders, later adding the government should reconsider what he called a "seriously flawed" tax.

Analysts have said another resource-rich nation, Brazil, could consider Australia's tax as a precedent and also raise taxes on iron ore.

Mongolia, Zambia, Peru and Ecuador have also considered and in some cases implemented a similar mining windfall profits tax.

Chile, the world's biggest copper exporter, had already announced temporary higher royalties to help pay to rebuild towns destroyed by a major earthquake earlier this year.

A senior Australian Treasury official, David Parker, who is leading government consultations with miners over the new tax, said resource-rich nations were increasingly moving towards mining rent taxes and away from royalty systems.

He said some provinces in Canada and some U.S. states also had resource rent taxes.

Australian iron ore miner Fortescue Metals Group (FMG.AX) has threatened to pull $15 billion in projects over the tax, while Rio Tinto has put every Australian investment plan under review.

Albanese, who has labelled the new tax as his company's top global sovereign risk issue, said he was confused by the government's messages on the tax.

"I've been confused by the government's mixed messages," he told Rio's annual meeting, in reference to suggestions the booming mining sector needs to be slowed to help other parts of the economy and bring down the Aussie dollar.

Interim Report on Tax Due this Week

Rio has also strongly criticised the consultations over the new tax, saying the talks are too narrow and do not address issues around the competitiveness of Australia's industry.

Treasurer Wayne Swan, however, said more than 80 mining companies were now involved in consultations over the new tax, although he declined to comment on areas of possible compromise, including the starting threshold for the new tax, set at around 6 percent and based on the 10-year government bond rate.

"The government is continuing to talk to many mining companies about their views. We are genuine in our consultation,' Swan told reporters.

"I'm not ruling anything in, or out, because I'm going to repeat what I said at that press conference on day one, which [is] we are committed to getting a fair share for the Australian people," he said.

"We've put out the design of the tax and we are consulting on that, and that is what we are continuing to do."

The tax is the centrepiece of Prime Minister Kevin Rudd's re-election campaign and efforts to counter sliding opinion polls that hold the outside chance of a hung parliament.

Australia's Treasury hopes to hand the government an interim report later this week on its initial talks with miners.

The government on Wednesday won backing for its tax plan from a group of leading economists, who said the new super profits tax would not harm Australia's current resources boom.

The group of 20 mainly academic and policy economists issued an open letter in which they said the replacement of state-based royalties with a resource rent tax offered a "superior" tax that would benefit Australians.

(Additional reporting by Sonali Paul in MELBOURNE, Rob Taylor and James Grubel in Editing by Ed Davies and Ian Geoghegan)

Xstrata threatens to end $5.4bn Australia projects

Decision piles more pressure on Canberra to water down tax.


2 June 2010

Global miner Xstrata threatened on Thursday to scrap $5.4 billion in coal and copper projects in Australia, blaming Canberra's new mining tax and bringing to more than $20 billion the value of shelved new developments.

Xstrata's move, which targets Prime Minister Kevin Rudd's home state of Queensland, will further pile pressure on the government to water down the proposed 40 percent tax and give powerful new ammunition to the tax's political opponents.

Xstrata, which last month halted some copper exploration in Queensland, said it was now also immediately suspending A$586 million of expenditure on its Wandoan thermal coal project and also a A$600 million expansion of its Ernest Henry copper mine.

The shelved expenditure forms part of a total planned capital investment of more than A$6.4 billion ($5.4 billion) to complete both of the Queensland developments, with the coal project accounting for the vast majority of this, it added.

"Neither will be viable if the (tax) is imposed," Xstrata Chief Executive Mick Davis said in a statement.

The government plans to introduce the 40 percent tax on mining profits from 2012, arguing that it is not getting its fair share of the commodities-export boom, but its proposal has outraged the mining industry, Australia's biggest export-earner.

Last month, Fortescue Metals Group suspended iron ore projects in Western Australia state worth around $15 billion, though these were in an earlier stage of planning, compared with the Xstrata projects where spending had already been approved.

"The (tax) has created significant uncertainty for the future of mining investment into Australia and would impair the value of previously approved projects and exploration to the point that continued investment can no longer be justified," he added.

"The impact of the tax eliminates the net present value of the Wandoan coal project almost entirely and substantially reduces the value of the Ernest Henry underground shaft project."

Xstrata had planned to extend the open-cut Ernest Henry mine by mining deeper through vertical shafts, extending its life by 11 years to at least 2024. The mine can produce annually 115,000 tonnes of copper in concentrate and 120,000 ounces of gold in concentrate, according to Xstrata's Web site.


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