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Australia May Become Highest-Tax Mining Nation, Citigroup Says

The possible introduction of a 40% resources tax may make Australia, the world’s biggest exporter of iron ore, alumina and coal, the most highly-taxed mining nation, cutting its competitiveness, Citigroup Inc. said.

“Australian royalties-taxes are already some of the highest in the world and further increases will severely curtail investment in, and the competitiveness of, our resources sector,” Citigroup analyst Craig Sainsbury said yesterday in a report. Treasurer Wayne Swan will release Treasury Secretary Ken Henry’s review of the nation’s tax system on May 2.

BHP Billiton Ltd., the world’s biggest mining company, may have its earnings cut by 19 percent should a 40 percent tax be applied, according to Merrill Lynch & Co. Any new tax regime must consider Australia’s international competitiveness, Don Argus, Melbourne-based BHP’s former chairman, said last year.

Swan commissioned the review almost two years ago. The review may propose a 40 percent tax rate to replace corporate tax and state-based royalty payments for mining companies.

Australia is the third-highest taxed mining nation with a total tax burden of 35 percent, behind the U.S. and Brazil, Citigroup said. The new tax would replace a 30 percent corporate tax rate and state production royalties of between 2 percent and 8 percent, the broker said.

‘Tax Grab’

Rio Tinto Group, the world’s second-largest iron ore exporter, which has about a third of its assets in Australia, may have its earnings cut by as much as 30 percent, Merrill Lynch’s Peter O’Connor said yesterday in a report. BHP has 51 percent of its assets in Australia.

“We should ultimately brace for a larger future tax grab than is currently the case,” Merrill’s O’Connor said.

Gold and copper companies, which pay royalties of 3 percent, will be most affected, while coal producers, which pay about 6 percent to 8 percent, may suffer less, Citigroup said.

Australian gold output rose 14 percent in the fourth quarter last year, helped by Newmont Mining Corp.’s Boddington mine, confirming the country as the world’s second-biggest producer, research group Surbiton Associates Pty said last month.

The tax proposals may not be considered until after a Federal election at a date-to-be set this year, Sainsbury said. “We don’t believe that any major tax reform will be likely before 2012 at the earliest,” he said. State governments would also need to agree to remove their royalties, he said.

“We don’t believe the Henry tax review is aimed at adding another level of tax burden on the miners,” Sainsbury said. “This is a means of standardizing and simplifying a confusing state-based royalty scheme.”

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