Australia, Miners Agree on Revised Taxes

Mayank Mehta, Chandrasekhar Atreya and Sanjay Barot
02 Jul, 2010
New York City

Resource stocks rallied after Australia and miners agree to revised lowered additional taxes for top 320 companies. Rio Tinto, BHP Billiton and Fortescue Metals make strong gains. Xstrata resumed work on its Queensland copper mine project.

[R]6:00 PM Sydney, Australia – Resource stocks rallied after Australia and miners agree to revised lowered additional taxes for top 320 companies. Rio Tinto, BHP Billiton and Fortescue Metals make strong gains. Xstrata resumed work on its Queensland copper mine project.[/R]

Stocks in Australia rallied led by resource companies after the government reached an agreement with the miners on the resource tax but at close lost most of the gains.

The ASX 200 index in Australia increased 0.03% or 1.20 to close at 4,238.70.

Australia’s Prime Minister Julia Gillard and her ministers Wayne Swan and Martin Ferguson reached an agreement with mining companies on a revised resource tax, thus ending a controversy that cost her predecessor Kevin Rudd the premier’s post.

The resource tax on minerals will now be applicable at 40% only on oil and gas projects while for iron ore and coal was reduced to 30%, the government said. The revised mineral tax will now affect 320 companies instead of the 2,500 under Rudd’s proposal.

“Today we have made a breakthrough agreement that moves Australia forward with certainty. We have been stuck with this too long and it will end uncertainty and division,” Gillard said at a news conference in Canberra.

The government said that the mineral tax will apply to profits of iron ore and coal at 30%. It also extended the existing Petroleum Resource Rent Tax to all onshore and offshore petroleum and gas projects. The threshold for the levy will be based on the 10-year government bond rate which is currently around 5% plus 7%. Previously it was to be applied on any profits above the 10-year government bond rate.

Xstrata Plc, the Switzerland-based exporter of coal, resumed work on its expansion project at Ernest Henry copper mine in Queensland after the vexing mining tax issue was resolved today.

Santos Ltd, which had put on hold a project to convert gas extracted from coal seams into LNG, has welcomed the move by the government to treat onshore and offshore projects on an equal footing.

“We’ve argued since the start that all oil and gas companies, whether they are onshore or offshore, needed to be treated equally,” Santos spokesman Matt Doman said by telephone from Adelaide.

“This is great news for Queensland State and its economy. The LNG projects proposed for development at the port of Gladstone can now move forward,” said Premier Ann Bligh in her statement.

ASX Movers

iSOFT Group Limited led gainers in the S&P ASX 200 index with a rise of 9.0% followed by Downer EDI Limited 7.8%, and Macmahon Holdings Ltd 5.5%.

St Barbara Limited led decliners in the S&P ASX 200 index with a loss of 5.8% followed by Elders Limited 5.0%, Sigma Pharmaceuticals Limited 4.6%, Perseus Mining Limited 4.3% and Karoon Gas Australia Ltd 4.0%.

Other Movers

BHP Billiton plc rose 0.4% to A$37.28.

Fortescue Metals Group Ltd rose 2.0% to A$4.08 after the iron-ore miner announced on July 1 that it will likely appeal the decision of the Australian Competition Tribunal according to which BHP Billiton''s Mt Newman rail line and Rio Tinto''s Hamersley rail network in West Australia''s Pilbara region will not be opened for third party utilization.

Newcrest Mining Limited fell 3.8% to A$34.01 and Rio Tinto Limited, the mining company, rose 0.6% to A$65.50.

Santos Ltd dropped 1.3% to A$12.19.