WRAPUP 2-Australia dangles tax carrot; China evaluates mine

* Big Chinese bauxite project at risk – newspaper

* Chinalco says no plans to pull out of Australia project

* PM Rudd announces mining state spending

* Finmin Tanner says talks with miners constructive
(Updates with new spending for mining states, PM quotes)

By Michael Perry

SYDNEY, June 9 (BestGrowthStock) – Prime Minister Kevin Rudd faced
down mining tax protesters on Wednesday and promised immediate
spending in Australia’s largest resource state in an effort to
placate opposition to a controversial mining tax.

Over $20 billion in new resource investment in Australia
has been put on hold by global miners due to the tax, with
Chalco (2600.HK: ) (601600.SS: ), the listed unit of Aluminum Corp
of China, saying on Wednesday it was evaluating a planned $2.5
billion bauxite project in Queensland.

Rudd is desperate to sell his 40 percent resource tax to
miners and voters, worried about job losses in mining towns,
ahead of a possible cliffhanger election expected in October.

“The government can announce today that we will be
directing a bigger share of the proceeds of a resurgent
resources boom back into resource states through critical
infrastructure…,” Rudd said in a speech in Perth, after
running the gauntlet of some 1,000 protesters opposed to the
mining tax.

Miners warn the tax is jeopardising investment in the
mining industry, a key export earner and regarded by some as
saving Australia from recession during the global crisis.

“I don’t believe investors’ confidence in Australia has
been directly shaken by the tax. The ASX (Australian Stock
Exchange) is still outperforming the U.S., Europe and Japanese
markets,” Rudd said.

“And if you look at the major mining firms in Australia,
such as BHP and Rio, they are also outperforming their
competitor Vale (VALE5.SA: ), and there are no talks of
introducing a mining tax in Brazil.”

Rudd reportedly met Marius Kloppers, chief executive of top
global miner BHP Billiton (BHP.AX: ) (BLT.L: ), late on Tuesday
night, and on Wednesday was due to meet Andrew “Twiggy”
Forrest, head of Fortescue Metals Group (FMG.AX: ). Both have
been fierce critics of the proposed tax.

“The prime minister made a quick knee jerk decision which
shook the confidence of the nation,” said iron ore billionaire
Forrest, ahead of addressing anti-mining tax protesters.

Forrest has threatened to scrap up to $15 billion in future
projects planned by Fortescue if the tax goes ahead.

In a sign the government may be more conciliatory towards
miners, Finance Minister Lindsay Tanner said: “There are a
range of things that we see as legitimate grounds for
negotiations”.

“The negotiations are very important and we believe they
are proceeding in a constructive and sensible manner, but they
are very complex,” added Tanner, who was speaking at a Reuters
newsmaker event for the Australian launch of Reuters Insider.

While Rudd would not move on the headline 40 percent rate,
he did say the government was prepared to offer “generous
transitional arrangements to mining firms”.

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For TAKE-A-LOOK on the tax; [ID:nAUTAX]

For Tanner Insider video clip:
http://link.reuters.com/jez88k
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CHINA MORE CONCERNED ABOUT SUPPLY THAN TAX

The Australian Financial Review said Chalco may drop its
Aurukun bauxite project in Queensland, having struggled with
rising costs, market oversupply, a requirement to build a
refinery, and now the tax.

But Chinalco Vice President Lu Youqing told Reuters the
group had not discussed pulling out of the project.

“We are pushing the project. Now we are comparing different
proposals,” he said, adding the tax was one factor under
consideration.

Tanner said China’s main concern in Australia’s resource
sector was not the new tax, but supply.

“Their primary concern will be long-term reliability of
supply and Australia’s track record … has been extremely good
and I would expect that to continue,” he said.

Mining shares have seen billions of dollars wiped off their
value since the “super profit” tax was first announced in May,
and the government is under intense fire from miners and has
seen its voter support plummet in recent months to the point it
now risks being turfed out of office after only one term.

In an effort to win support for the tax, Rudd said the
resource state of Western Australia, where the government is at
risk of losing all its parliamentary seats, would receive A$2
billion worth of infrastructure from tax revenue.

He said spending in the mining state would start
immediately, with projects aimed at development and job
creation in mining towns and improved infrastructure in mining
ports.

“That means more rail, roads, ports, and other crucial
infrastructure to support the workforce in critical mining
regions…,” he said.

Rudd had already announced a A$5.6 billion mining tax
infrastructure fund, which would not be spent until the tax
came into effect in 2012, but on Wednesday topped it up with an
additional A$400 million to be spent immediately.

GOVT COMMITTED TO TAX

Rudd has linked the tax with the 2010-11 budget in May,
saying tax revenue would boost retirement savings, lower
company tax and guarantee a surplus budget by 2012-13. All will
be major issues in the next election.

About 1,000 protesters gathered outside the Hyatt Hotel in
Perth where Rudd was speaking. Some waved placards saying
“Super Tax, Super Stupid” and “Rudd’s Mining Tax Hurts Us All”.

But the government appears committed to imposing a tax.

“The government’s position is … the existing (resource
tax) arrangements are both economically inefficient and also
deliver an inadequate return to the Australian people,” said
Tanner.

“We are not going to be diverted from our core objective,
to get a good deal for the Australian people for the extraction
of resources that can only be extracted and used once.”

Stocks

WRAPUP 2-Australia dangles tax carrot; China evaluates mine