Australia set for mine tax under Labor, Greens

By James Regan

SYDNEY (BestGrowthStock) – The formation of Australia’s Labor minority government, supported by independent and Green MPs, will see iron ore and coal miners hit by a new resource tax, but there is uncertainty over how much they will have to pay.

* Gillard’s proposed 30 percent tax on mining profits is due to start in July 2012, but the shape of the tax may change with Labor relying on support from the Greens. The Greens oppose more coal mining and want to maximize revenue from the tax for social and environmental programs, and have in the past called for a higher tax rate. The Greens may have applied pressure for a higher rate when cutting a deal to back Labor.

* The tax was agreed with the sector’s biggest payers — Rio Tinto, BHP Billiton and Xstrata — before Labor had to seek help from the Greens. Now the Greens have one lawmaker supporting the minority government in the lower house and control the balance of power in the Senate after the election.

Signaling that the tax may changes, Prime Minister Julia Gillard has said “getting legislation through the parliament will require cooperation with other political parties.”

* The Greens could exert change to the proposed tax either at its initial drafting stage or when the legislation is presented to the Senate.

* Until tax certainty exists, delays over mine investment decisions in almost every Australian state and reluctance among foreign investors to provide funds will persist. Fortescue Metals Group, Australia’s third-largest iron ore producer, already says it has put $15 billion of proposed projects on hold.

* BHP Billiton, Rio Tinto, Xstrata and Fortescue fall squarely in the sights of the tax. Commodity diversification will enable most big miners to offset some of the heavier tax burden on their iron ore and coal divisions. Fortescue faces a more direct tax bill because it mines only iron ore.

* Because the tax applies only to coal and iron ore mining companies earning A$ 50 million ($46 million) or more, some 2,000 copper, silver, lead, zinc, gold, nickel and other minerals producers are unaffected if the proposed tax is passed intact.

* Magnetite iron ore producers such as Atlas Iron, Gindalbie Metals, Citi Pacific Mining, Grange Resources, Centrex Metals, Royal Resources, Murchison, Onesteel and Emergent Resources face paying the tax despite facing much higher production costs compared with other iron ore miners.

* Similarly, producers of brown coal, which face additional costs of around $25 per ton to extract water from the mud-like coal, will be taxed at the same rate as black coal miners. Brown Coal producers include: Great Energy Alliance Corp, International Power Australia and TRUenergy Holdings

* Failure to provide speedy clarification of the tax will almost certainly reignite a media advertising campaign by miners extolling the large contribution of the sector to the national economy and the threat they see to investment and jobs.

(Editing by Ed Davies and Alex Richardson)

Australia set for mine tax under Labor, Greens