BlackRock Investment Management Ltd., owner of the $14.3 billion World Mining Fund, said higher government taxes and any slowdown in China are the biggest threats facing mining companies.
“The biggest opportunity is also the biggest risk and that is China’s appetite for commodities,” Evy Hambro, manager of the fund, said today in an interview on Bloomberg TV. “The other main challenge that resource companies are going to face over the next few years is rising resource nationalism and increasing government take.”
Australia, the biggest exporter of iron ore and coal, may become the most highly-taxed mining nation if the government introduces a 40 percent resources tax, Citigroup Inc. said this week ahead of a tax review to be released on May 2. Commodity prices are rising as China, the biggest consumer of metals, experiences the fastest economic growth in almost three years.
“We are going to have to wait and see how greedy the Australian government is and what they are trying to take away from the resource companies,” Hambro said. “If there are troubles in China then that would have impact on commodities demand. That economy has been one of the best-managed economies for over a decade now with consistent growth and that’s an encouraging background for us.”
The World Mining Fund’s top holdings are Rio Tinto Group and BHP Billiton Ltd., which both have iron ore mines in Australia. The fund holds other companies with mines there including Xstrata Plc and Newcrest Mining Ltd. Fortescue Metals Group Ltd., the nation’s third-largest iron-ore producer, said today a new mining tax may limit expansions in the nation.
“If we remove the industry’s ability to retain its earnings, we remove its ability to fund itself and fund its expansions,” Fortescue Chief Executive Officer Andrew Forrest told reporters on a conference call. “If the company cannot retain its earnings in order to expand, then obviously the only alternative is ownership of that project goes offshore.”
Fortescue is spending more than A$10 billion ($9.3 billion) on developing new mines, rails and ports. There are at least A$43 billion of projects under construction or being expanded in Western Australia, according to the state’s Department of State Development.
The total return in the past year for World Mining Fund is 75 percent, according to Bloomberg data. Commodity prices, as measured by the Reuters/Jefferies CRB Index, have gained 24 percent in the same period.
“The profitability for most mining companies today is a lot better than it was last year,” Hambro said. “In some cases, with the cost cutting we’ve seen and the recovery in prices, we would expect some record earnings from some of the investments in our portfolio.”
BHP Billiton, the world’s largest mining company, may more than double profit for the year ending June 2010, according to the average estimate of 24 analysts compiled by Bloomberg.
The price of gold may rise over the next few years as “supply continues to decline or stagnate despite the gold price having risen by almost four-fold since the peak in production in 2001,” Hambro said.
Gold gained today, poised for its strongest month since November, as the European debt crisis helps rekindle investor interest in the precious metal. Gold for immediate delivery rose 0.5 percent to $1,173.10 an ounce at 4:39 p.m. Sydney time. The metal climbed to $1,174.48 an ounce on April 28, the highest price since Dec. 4.