JPMorgan's Henderson Reduced Rio, BHP Holdings on Mining Super Tax Concern

JPMorgan Chase & Co.’s Ian Henderson, manager of $7 billion in natural-resource assets, sold about a quarter of his combined Rio Tinto Group and BHP Billiton Ltd. holdings on concern a proposed Australian tax will curb growth.

“I’m sorry to say we’ve reduced our Australian exposure,” Henderson said in a phone interview today. “It’s been a wake-up call frankly. I had not thought that the changes in Australia would be quite as drastic as they are proposed to be.”

Australia last month said it planned to impose a 40 percent tax on mining company profits from 2012 to raise A$12 billion ($10 billion) in the first two years of the changes. Rio, BHP and Xstrata Plc are reviewing the viability of some projects in the country and are pressing for changes to the plan.

“It clearly does reduce the attractions of developing new projects in Australia and indeed investing in Australian-based mining ventures,” Henderson, who has been a fund manager with JPMorgan since 1991, said from London. “It has made people aware of the potential for these industries to be used as milk cows by governments. That has altered the risk profile for the mining industry probably for quite a long time.”

Rio, the third-largest mining company, had been Henderson’s top holding, comprising about 4.5 percent of his funds, including the Global Natural Resources Fund. The stake in the company “has been reduced by about $100 million,” he said. The fund returned 111 percent in 2009, according to Bloomberg data.

While Henderson cut stakes in companies with Australian assets shortly after the tax plan was announced, he has raised holdings of gold miners. Prices of the metal are up 11 percent this year and reached a record $1,249.40 an ounce on May 14.

Buying Gold

“Our gold exposure has gone up over the past couple of months,” Henderson said.

Among the companies likely to be affected by the taxation plan, Henderson also made a “reasonably significant” reduction in his holdings of Fortescue Metals Group Ltd.

Fortescue, Australia’s third-largest iron ore exporter, put about $15 billion of projects on hold because of the plan, the Perth-based company said May 19. AngloGold Ashanti Ltd., the world’s third-largest gold producer, will also cut exploration spending in the country if the tax is approved, Chief Executive Officer Mark Cutifani said today by phone from Canberra.

Rio, based in London, fell 1.4 percent to 3,107.5 pence by 12:31 p.m. in the city and has dropped 7.9 percent since the plan was announced on May 2. Melbourne-based BHP declined 1.7 percent and is down 8.9 percent from May 2.

Rio yesterday said it was paying its “fair share” of taxes after contributing more than $20 billion in the past decade. Xstrata Chief Executive Officer Mick Davis said the proposed levy may prompt companies to cancel investments.

Immovable Feast

“Resources are immovable but diversified mining companies have a choice of countries in which to invest,” Davis wrote in a letter today in the Financial Times. “Investments in Australian resources are at risk of being delayed or cancelled.” Xstrata is based in Zug, Switzerland.

Prime Minister Kevin Rudd yesterday vowed to push ahead with his proposals, which will apply to profits on resource projects above the long-term bond rate, currently about 6 percent. Australia is the biggest exporter of coal and iron ore.

To contact the reporter on this story: Jesse Riseborough in London at jriseborough@bloomberg.net; Anna Stablum in London at astablum@bloomberg.net.

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