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BHP, Rio Tinto Drop in Sydney as Swan Says Mining Tax Design Not Completed
BHP Billiton Ltd. and Rio Tinto Group declined in Sydney trading after Australian Treasurer Wayne Swan signaled the final terms of the government’s planned mining tax may depend on talks with independent lawmakers.
BHP, the world’s biggest mining company, fell 1.4 percent to A$37.91 at the 4:10 p.m. Sydney time close on the Australian stock exchange. Rio slid 1.2 percent and Macarthur Coal Ltd. dropped 2 percent. The benchmark index declined 0.8 percent.
“Markets hate uncertainty - they’re probably going to be volatile until there’s a pretty clear picture of what the mining tax will look like,” said James Holt, who helps manage about A$40 billion ($36.5 billion) at BlackRock Investment Management (Australia) Ltd. “The government may have to change it to prevent a black hole in the budget.”
A committee chaired by former BHP Chairman Don Argus is yet to produce a design for the 30 percent levy on iron ore and coal profits, Swan said today. Labor party Prime Minister Julia Gillard, who yesterday clinched the support of independent lawmakers Tony Windsor and Robert Oakeshott to form a minority government, said she can’t assume automatic support for her legislation in parliament.
‘Some Confusion’
“There seems to be some confusion among traders as to the outcome for the proposed mining tax,” Ben Potter, market strategist at IG Markets Ltd. said in a note. “Everyone thought a Labor government meant a certain mining tax. This may not be the case. There could be three potential outcomes - it either goes ahead as planned, it doesn’t get passed or it gets passed with changes.”
The government aims to have its revamped resources tax, an election pledge, apply from July 1, 2012 and Swan said it would take longer than six months for any legislation to be put to parliament. Independent lawmakers will be part of talks with Argus, he said. BHP, Rio and rival coal and iron ore companies will pay A$10.5 billion ($9.6 billion) more in tax in the first two years of the levy, according to government estimates.
“We agreed with mining companies on the tax design and established the Argus committee to work with the industry,” Swan said. “The independents will talk to the government about the mining tax and we will be seeking their support for the final design of the tax.”
Tax Summit
Swan said a summit next year would look at broader changes to the tax system, including proposals from Treasury Secretary Ken Henry released on May 2. Oakeshott yesterday said he would like an “open public discussion” on the mining levy as part of a broader debate on tax. Windsor said last month he supported a profits-based mining tax.
Australian Greens leader Senator Bob Brown, who has called for a higher rate and will hold the balance of power in the Senate from next year, says he will support Gillard’s mining tax proposal. Brown had said he wants to renegotiate the mining tax to raise an extra A$2 billion.
“We’ve taken a look at some of their policies and they include things like no new coal mines, no new expansions, they are anti-uranium as well,” Nick Burmester, head of hedge fund sales at MF Global Australia Ltd., said in an interview with Susan Li on Bloomberg Television. “They do want to ramp up the resources tax. There is more uncertainty than certainly there ever has been in recent memory.”
New Mines
The “worst case scenario” for mining companies would be if the balance of power in the Senate was held by the Greens who would push the Labor government to reintroduce former Prime Minister Kevin Rudd’s version of the mining tax, which proposed a 40 percent rate, Citigroup Inc. said in an Aug. 2 report.
“We would like to see the Rudd proposal go forward, the first one, the 40 percent,” Brown told reporters in Canberra today. “I can see that’s not going to succeed. We do not have the numbers.”
While Rio Chief Executive Officer Tom Albanese said last month the company can “work with” the tax, smaller and mid- sized miners are unhappy. The Association of Mining and Exploration Companies Inc. restarted an advertising campaign against the tax during the campaign, saying it will cost jobs and deter investment.
‘Not Clear’
“ It is not clear whether the government has the numbers to pass the minerals resource rent tax (MRRT) into law,” JPMorgan Chase & Co. analysts led by Paul Brunker said yesterday in a report. “The independents who have sided with the government have argued for a broader review of tax policy. This could kick the issue into the long grass for so long that the political balance shifts before the tax even comes to a vote.”
BHP will have its valuation cut by as much as 5 percent under Australia’s revised mine tax, less than with the initial proposal, according to Macquarie Group Ltd. Revenue from the tax faced an A$8 billion shortfall, raising fears a Labor-Greens alliance would be forced to raise or expand the levy to meet budget forecasts, the Australian newspaper said yesterday, citing a report by global resources intelligence company Intierra.
“This raises the risk that the government may seek to increase the proposed minerals resource rent tax rates or the regime being applied to other commodities,” UBS AG analysts led by Glyn Lawcock said yesterday in a report.
-- With assistance by Marion Rae and Gemma Daley in Canberra. Editors: Keith Gosman, Tan Hwee Ann
To contact the reporters on this story: Gemma Daley in Canberra at gdaley@bloomberg.net To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net
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