Australian Resources Minister Martin Ferguson signalled
Wednesday the government will consider varying the way its planned
new mining tax is applied to some sectors of the resources industry
and said progress is now being made in talks with the industry on
the proposal.
The planned resource super profits tax has been met with furious
opposition from the mining sector, and the mining industry said
talks with the government are still nowhere near delivering an
acceptable compromise.
Rio Tinto also highlighted the gulf between the parties in a
letter to shareholders Wednesday, lambasting the government for its
lack of consultation and for a policy it said was damaging and
divorced from commercial reality.
But Ferguson said productive talks with the industry are now
underway and that the government is studying the concerns of
specific types of businesses affected by the tax, which is levied
at 40% on profits above a rate of return of 6%.
Ferguson ruled out altering the 40% rate for different
businesses and said there will be no "special deals", but he
indicated the government will consider altering the point in the
production process at which the tax will be applied.
He said he has heard arguments from the petroleum sector,
producers of low value resources such as sand and gravel, and the
minerals sector, and they are each arguing that there is no
one-size-fits-all model.
"I am conscious of the fact that in transitional arrangements
there are different arrangements in petroleum as against for
example some minerals products," he said.
"What are the taxing points for example? What is the potential
solution to OneSteel (OST.AU)? We'll make sure...we take on board
the special nature of their operations."
"The issue of taxing point is central to our considerations," he
said.
OneSteel has raised concerns about the viability of its
steelworks at Whyalla in South Australia state under the new tax,
which the company says would apply equally to the hematite iron ore
it sells and the low-grade magnetite iron ore it mines in the same
town for use in the production process.
OneSteel said in May the tax would have a "major and immediate"
effect on the competitiveness of its mining and steelmaking
operations, and it argued the tax shouldn't apply to resources
consumed internally.
The heated stand-off over the tax has seen the government and
the mining industry trading insults and arguing over the tax rates
currently paid by miners and the potential impact of the new tax on
investment in the industry.
In his letter to shareholders, Rio Tinto Chairman Jan du Plessis
said the company supported tax reform that would enhance the
competitiveness of the Australian economy, but that the proposed
resource super profits tax wouldn't achieve this.
"The government's proposal will penalize efficiency, discourage
competitiveness, curtail investment and limit jobs growth," he
said.
"It has been developed in a vacuum and is divorced from the
day-to-day realities of business."
Du Plessis said the company was particularly concerned at the
application of the new tax to existing projects, which he said
would undermine the stable tax and regulatory environment needed
for commitment to mining projects that could take decades to pay
back the investment.
"The government's current proposals, arrived at without
consultation, have now significantly destabilized that investment
framework," he said.
"As a result, there has been a considerable increase in the
perceived risk of investing in Australia, threatening to make
Australia a much less attractive place in which to invest."
Morgan Stanley Says Olympic Dam At Risk
BHP Billiton Ltd. (BHP.AU) Chief Executive Marius Kloppers has
said that the giant expansion of the Olympic Dam copper and uranium
mine in South Australia is an example of a project that would be
impacted by the tax, and Morgan Stanley analysts said Wednesday
they didn't believe the project would go ahead if the tax was
enacted in its current form.
"Our modelling of this project shows that the RSPT reduces the
(net present value) of the project to an extent that it becomes
negative, (with) return on invested capital below minimum hurdle
rate of 15% used by the mining industry," Morgan Stanley analysts
said in a client note.
"Under the RSPT as proposed, the project has no economic value
in our view."
Morgan Stanley said base metal and thermal coal projects would
struggle to make a return under the tax and that major changes were
needed to the proposal, including cutting the rate of the tax to
20% and raising the threshold at which it kicked in to as high as
15%.
While ruling out any change in the rate, Ferguson said the
government is getting closer to a solution to the stand off after
having discussions with a range of employers across the resources
and energy sector.
"Their willingness now to seriously discuss the issues with
government and to inform the process, I suppose, from an overall
point of view, does enable us to expedite our thinking," he
said.
"And that effectively means that we are better positioned to
sort these details out sooner than later. But I'm not going to put
a timeline on it because there is a long way to go and I'm not
going to hasten outcomes and then not get the appropriate balance
right."
In a sign the government may be working on some form of
compromise, Ferguson canceled plans to attend a meeting of Asia
Pacific Economic Cooperation energy ministers in Japan this week to
continue negotiations with industry.
Ferguson said there has been real progress made over the past
week to ten days including productive talks between BG Group PLC
(BG.LN) and Prime Minister Kevin Rudd on the potential impact of
the tax on the emerging coal-seam gas sector.
Minerals Council of Australia Chief Executive Mitch Hooke said
he understood there had been some movement in talks between the
government and the coal seam gas sector but that mining companies
were nowhere near agreement with the government.
"There are discussions going on, but they're not within a bull's
roar of anything that I would think would be acceptable to the
industry at this stage," he told reporters.
He called for the government to amend the 40% rate of the tax
and said anything else would be "tinkering at the edges".
"You've got to get the tax base right, you've got to get the
rate right, you've got to get the retrospective application right,"
he said.
"Those are three fundamental parameters that currently aren't on
the agenda for discussion with the government."
-By Alex Wilson, Dow Jones Newswires: 613-9292-2094;
alex.wilson@dowjones.com
(Rachel Pannett in Canberra and Neil Sands in Melbourne
contributed to this report)
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