BHP, Rio Gain on Optimism Mining Tax May Be Dropped
BHP, Rio Gain on Optimism Mining Tax May Be Dropped
BHP Billiton Ltd. via Bloomberg
BHP Billiton Ltd. and Rio Tinto rose on optimism the proposed mining tax may be scrapped or diluted.
BHP Billiton Ltd. and Rio Tinto rose on optimism the proposed mining tax may be scrapped or diluted. Source: BHP Billiton Ltd. via Bloomberg
Aug. 23 (Bloomberg) -- Atlas Iron Ltd. Chief Executive Officer David Flanagan talks about this past weekend's Australian election and its implications for a proposed tax on mining companies. Tony Abbott’s Liberal-National coalition led Prime Minister Julia Gillard’s Labor Party 72 seats to 70, four short of an absolute majority, according to figures on the Australian Electoral Commission website as of 8:45 a.m. today. Two independent lawmakers who may hold the balance of power say they disapprove of Gillard’s mining tax, which she has refused to scrap. Flanagan speaks from Perth with Bloomberg's Susan Li. (Source: Bloomberg)
Aug 23 (Bloomberg) -- George Boubouras, head of investment strategy at UBS AG's Australian unit, discusses the country's election, which left neither of the two main parties with an absolute majority. He talks with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)
Australian Opposition Leader Tony Abbott
Sergio Dionisio/Bloomberg
Tony Abbott, leader of Australia's opposition Liberal Party, speaks at a Liberal Party Election Function in Sydney.
Tony Abbott, leader of Australia's opposition Liberal Party, speaks at a Liberal Party Election Function in Sydney. Photographer: Sergio Dionisio/Bloomberg
Australian Prime Minister Julia Gillard
Carla Gottgens/Bloomberg
Australian Prime Minister Julia Gillard is surrounded by the media after voting in Melbourne.
Australian Prime Minister Julia Gillard is surrounded by the media after voting in Melbourne. Photographer: Carla Gottgens/Bloomberg
The fate of a proposed mining tax in Australia, the world’s biggest exporter of coal and iron ore, remains in doubt after no clear winner emerged from the weekend’s election, heightening uncertainty for investors.
Australian Prime Minister Julia Gillard, 48, and opposition leader Tony Abbott, 52, will need to broker deals with lawmakers to pass legislation after neither major party won enough seats to form a government in the 150-member House of Representatives.
Abbott has vowed to scrap Labor’s proposed mining tax, which would place a 30 percent levy on iron ore and coal producers such as BHP Billiton Ltd. and Rio Tinto Group, while Greens leader Bob Brown, whose party now looks to hold the balance of power in the upper house, has said he wants to renegotiate the tax to raise an extra A$2 billion ($1.8 billion).
“If the Liberals were to form a government, there’s no mining tax,” Peter Chilton, a fund manager at Constellation Capital Management Ltd. who holds shares in both BHP and Rio, said by phone from Sydney. “That’s potentially positive for the mining sector. If Labor forms an arrangement with the Greens, there’s more uncertainty.”
Seventy-six seats in the lower house are needed to form a government. Abbott’s Liberal-National coalition had 71 and the ruling Labor Party had 70 at 3:45 p.m. yesterday in Sydney. Three independents and one Greens candidate won seats, while four remained undecided.
Decisive Issue
“I’m sure the mining tax cost Labor the election,” Clive Palmer, an Australian billionaire who shelved two mining projects in response to Labor’s initial tax proposal, said yesterday. “Tony Abbott looks like he’ll be the next prime minister.”
While Independents Bob Katter, Robert Oakeshott and Tony Windsor are ex-members of junior coalition partner, the Nationals, who traditionally draw support from rural Australia, they haven’t indicated which party they would back.
“There are three independents that are ex-Nationals. They represent the bush, and they won’t want that tax,” said Cameron Peacock, a market analyst at IG Markets in Melbourne. “If you look at the breakdown of the votes, of those independent candidates, Labor is the least-favorite party.”
Even should Labor be able to form a government, the party’s mandate to introduce the new tax has gone, Atlas Iron Ltd. Chief Executive David Flanagan said.
No Mandate
“Those independents that they will try to do a deal with will want to side with someone who’ll have a mandate to rule,” Flanagan said in a phone interview from Perth yesterday. “If the tax still keeps coming, we won’t give up.”
A perception of political risk in Australia has deterred foreigners from investing in the nation’s stock market, according to Gary Head, who co-manages UBS AG’s equities business in Australia and New Zealand. Investor nervousness increased after the proposed tax deepened concerns over government intervention in other industries, he said last week.
“The Australian brand has been damaged and it’s going to be some time before overseas investors come back and say ‘well those Australians are not as crazy as we thought they were’,” said Peter Strachan, a Perth-based analyst for independent advisory firm StockAnalysis. He expects Australian coal and iron ore companies to rally on the stock markets this week.
Gillard ousted Kevin Rudd as prime minister in June after his plan for a 40 percent levy on “super profits” helped sap support for Labor. She negotiated a new proposal with BHP, Rio and Xstrata Plc, cutting the tax back to 30 percent.
Under Labor’s plan, BHP, Rio and rival producers will pay A$10.5 billion ($9.4 billion) more in tax in the first two years of the levy. Fortescue Metals Group Ltd., Australia’s third- largest iron ore company, said the tax threatened its planned A$17 billion expansion.
Greens Want More
Morgan Stanley estimated the 40 percent levy would have cost the mining industry A$85 billion in its first 10 years, while UBS AG had forecast the tax may reduce Rio’s earnings by 21 percent and earnings at BHP by 17 percent in 2013.
Brown, whose Greens party had proposed a 50 percent levy on mining earlier this year, will push Labor to restore the 40 percent rate, Citigroup analyst Craig Sainsbury said in an Aug. 2 report. Gillard’s deal to scale it back will cost taxpayers A$7.5 billion in revenue in its first two years, Brown has said.
“All things being normal, the mining tax should be dead, but the Labor Party has shown an incredible capacity to be very Machiavellian,” BC Iron Ltd. Managing Director Mike Young said in a phone interview yesterday.
“Julia Gillard quoted Bill Clinton as saying ‘the public have spoken, we just don’t know what they’ve said yet.’ I think they said ‘we don’t want a mining tax’, so she’d better listen.”
To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net
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