OST Onesteel Fpo

Global mining companies' confidence in Australia will depend on the work of a government panel tasked with refining the country's mining tax plans, the country's top mining lobby said Friday.

While expressing support for revisions of the planned tax proposed by the government, the Minerals Council of Australia said that it had a "small policy window" to prevent investor views of the country's mining regime from deteriorating.

"A lot of work needs to be done in a relatively short space of time to turn around negative perceptions and to reinforce investor confidence in Australia as a premier destination for minerals production and investment," the Minerals Council said.

In a response to an issues paper produced by Australia's Department of Resources, Energy and Tourism Friday, the body warned that competition from Asia, Africa and Latin America could threaten Australia's dominance of iron ore and coal, the two commodities to be taxed under the government's planned Minerals Resource Rent Tax.

The issues paper was released ahead of meetings due over the next two months of the government's Policy Transition Group, a body composed largely of former and current mining and energy executives, which is to refine the final form of the tax.

In the paper, released earlier Friday, the Policy Transition Group said it would expect to receive submissions from interested parties by Oct. 28.

The Minerals Council's strident opposition to a previous version of the tax, the Resource Super-Profits Tax, helped contribute to a mood of political uncertainty leading up to the internal party coup in late June against Australia's former prime minister Kevin Rudd.

Prime Minister Julia Gillard revised the tax as the MRRT within a week of arriving in office after consultations with BHP Billiton Ltd. (BHP), Rio Tinto PLC (RTP) and Xstrata PLC (XTA.LN), cutting the tax rate to an effective 22.5% and removing it from all commodities but coal and iron ore.

But heavy losses in mining seats from the states of Queensland and Western Australia states have left Gillard hanging onto power after Australia's Aug. 21 election thanks to the support of four Members of Parliament outside her governing Labor party.

In its submission to the MRRT's policy transition group, the Minerals Council highlighted its support for the current version of the tax, describing the change as "a positive step and an opportunity to draw a line under the uncertainty created by the RSPT".

However, other mining groups have opposed the revised tax. Andrew Forrest, chief executive of Fortescue Metals Group Ltd. (FMG.AU), the country's third-largest listed iron ore miner, has characterised the proposals as a stitch-up by the big three companies.

"The designers meant to penalise anyone coming behind them wishing to develop infrastructure," he said at a conference in Sydney this week.

A key concern for smaller miners will be the treatment of certain less-profitable forms of the commodities, particularly magnetite iron ore and brown coal.

In its issues paper, the PTG said that it "is inclined to the view that beneficiation processes would be beyond the taxing point," meaning that the tax would be applied at an early stage of production, before the miners begin any significant processing of the ores.

That may be more attractive to magnetite miners, who claim to be confident that the government will exempt them from the heaviest effects of the tax.

The issues paper also suggested that "the taxing point is not intended to capture operations in which the resource is consumed on site as part of an integrated project", an exemption that could be positive for TRUenergy, an electricity utility owned by Hong Kong's CLP Holdings Ltd. (0002.HK) which is Australia's biggest consumer of brown coal.

OneSteel Ltd. (OST.AU), which mines large quantities of iron ore for use in its own blast furnaces, might also benefit from such an exemption.

-By David Fickling, Dow Jones Newswires; +61 2 8272 4689; david.fickling@dowjones.com

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