Australia Supports Higher Resource Taxes

Mayank Mehta, Chandrasekhar Atreya and Darlington Musarurwa
18 May, 2010
New York City

Australian government said its proposal to impose 40% tax on resource companies is an effort to make structural changes in how it incentivizes investments. The dollar fell after The RBA releases minutes of latest meeting. Macarthur Coal rejected takeover proposal by Peabody Energy.

[R]3:00 AM New York, 7:00 PM Sydney – Australian government said its proposal to impose 40% tax on resource companies is an effort to make structural changes in how it incentivizes investments. The dollar fell after The RBA releases minutes of latest meeting. Macarthur Coal rejected takeover proposal by Peabody Energy.[/R]

The Australian dollar fell to a near three-month low after investors interpreted latest RBA minutes of meetings as an indication of slower increase in interest rates.

The Reserve Bank of Australia released the minutes of the meeting held on May 4 in Sydney today. “After spending considerable time discussing the consequences of sovereign debt from parts of Europe, the members felt that increases in interest rates to date had been timely”, the report said.

The proposed tax on profits of resource producers is negatively affecting investment decisions and may reduce their earnings by a third, Moody’s Investors said in an e-mailed report.

The Australian uranium producer, Paladin Energy Ltd, plans to look for mergers and acquisitions overseas after the announcement of 40% super profit mines tax by the government.

‘Our Australian projects are not mooted for development decision until the years 2013, 2014 and this timeframe gives us ample opportunities to look for offshore opportunities’ said John Borshoff, Paladin’s Managing Director, while speaking with analysts and investors in a conference call today.

Transurban shares fell sharply as Ontario Teacher’s Pension Plan sold 160 million shares for A$4.44 each after their combined offer was rejected by the toll-road operator, according to Dow Jones.

McArthur Coal Ltd shares plunged after the company rejected the revised offer made by Peabody Energy Corp, the largest US coal producer as untenable.

“The board met today and formed the view that the revised proposal by Peabody Energy based on the price and conditions of the offer, cannot be recommended to the shareholders”, the Brisbane-based firm said in a statement today.

Commodity stocks were mixed as gold prices fell 0.7% to $1,219 per ounce and crude oil prices edged up 1.4% to $71.1 per barrel.

In Sydney trading ASX 200 Index rose 0.1% or 3.5 to 4,470.70.

Of the ASX 200 index stocks, 89 gained, 96 fell, and 15 were unchanged. Ardent Leisure led gainers in the index shares with a rise of 4.1%.

The Australian dollar fell 0.1% to 87.65 U.S. cents.

Macarthur Coal Rejects Peabody’s Bid

Macarthur Coal announced today that it has rejected the revised proposed takeover bid by U.S. based Peabody Energy.

Although the company had initially offered a takeover proposal to acquire all of the shares in Macarthur for A$16 per share, it reviewed the offer to A$15 per share after the Australian government proposed a super-profit tax.

According to Macarthur Coal, two of the largest shareholders it consulted noted that “a scheme of arrangement in the form proposed is unlikely to be approved.”

The report notes that CITIC, which is the largest shareholder holding 22.4% equity, said it doesn’t find the offer attractive.

“CITIC believes that the long-term strategic value of Macarthur Coal exceeds by a significant margin the cash offer contained in Peabody’s Further Proposal,” said CITIC.

Greece Worries Unlikely to Impact Australian Economy

Reserve Bank of Australia said in the minutes of the monetary policy meeting of the board held on May 4 that the direct impact of Greece on Australia was considered to be small.

Board members also considered pausing the process of normalizing interest rates since the resources boom was likely to worsen the medium-term outlook for inflation.

The RBA notes that monetary policy is now well placed for now as interest rates faced by most borrowers are around their average levels over the past decade.

Adjustment of Tax Will Over-Compensate Miners, Henry

The Australian reported that the country’s Treasury Secretary Ken Henry as saying today any adjustments to the proposed super-profits tax will over-compensate miners.

The tax imposes a 40% levy on super-profit and also allows rebates on state royalties and capital expenditure.

Under the proposed structure, the government will set the capital allowance rate, above which the super tax will kick in, at the 10-year government bond yield.

Henry said the new tax will help with the reallocation of resources within the economy.

“The introduction of a truly neutral tax on resource profits that removes the distorting impacts of taxes presently levied on resources profits would assist with a structural reallocation of resources,” said Henry.

ASX 200 Index Movers

Ardent leisure led gainers in the ASX 200 index stocks with a rise of 4.1% followed by Australian Agric 3.9%, Leighton Holdings 3.9%, Myer Holdings 3.7%, and Emeco Holdings 3.6%.

Macarthur Coal led decliners in the ASX 200 index stocks with a fall of 15.7% followed by Perseus Mining 9.9%, St Barbara Ltd. 7.8%, Virgin Blue Holdings 6.1%, and Transurban Group 5.6%.

Other Movers

Energy stocks rose after crude oil prices edged up 1.4% to $71.1 per barrel. Gindalbie Metals advanced 2.5% to A$1.04 and Mineral Resources climbed 2.3% to A$7.17.

Axa Asia Pacific dropped 0.3% to A$5.97 after the company said it is in talks with National Australian Bank over asset sales.

Woolworths edged up 0.3% to A$27.15.

GrainCorp advanced 3% to A$5.47 as the firm slashed its rail-freight rates for the 2010 to 2011 harvest.

Telstra Corp. soared 1.4% to A$3.01.