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Australia Mining Report Q3 2010
Business Monitor International, June 2010, Pages: 62
Business Monitor International's Australia Mining Report provides industry professionals and strategists, corporate analysts, mining associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Australia's mining industry.
New Super Profits Tax Unsettles Mining Industry:
The big news from the Australian mining sector over the second quarter of 2010 was the announcement by Treasurer Wayne Swan that the government was bringing in a 40% resource ‘super profits’ tax (RSPT) on all commodities mined in Australia. This new levy, announced as part of Swan’s 2010 Budget speech, is due to be introduced from July 2012 and will apply to both existing and new mining projects. Reaction from the mining industry to this new tax has been hostile, with Rio Tinto CEO Tom Albanese expressing his shock and warning that it could severely impact on inward investment into the local industry. Mining companies are particularly concerned by the fact that the new tax applies to existing, as well as new projects. New chairman of BHP Billiton Jac Nasser said in a letter to shareholders that the new tax should only apply to new investments and warned that any reform ‘should not disadvantage the resources industry compared to other industries in Australia [or]….compared to other countries’. BHP has said that the imposition of an RSPT would see the total effective tax rate on its Australian profits increase from 43% to 57%. This would compare to a tax rate of just 23% at its Canadian operations and between 27-38% in Brazil.
CEO of Fortescue Metals Andrew Forrest has gone further, describing the new tax as ‘resource nationalism’, according to The Australian newspaper. Certainly, there is much to fear from the Treasurer’s announcement and the share prices of leading Australian mining companies tumbled in the wake of Swan’s announcement. It now remains to be seen if there is any meaningful dialogue between government and business to make any alterations to the taxation regime before the July 2012 commencement date.
Reaction from state governments has also been adverse, with Queensland asking the federal government to double the threshold (currently set at about 6%, the rate of long-term Australian debt) that is considered as a ‘super profit’. Indeed, such a doubling would make the super profits tax equivalent to the 11% petroleum resource rent tax, which has applied to new offshore oil and gas projects since 1987, according to The Australian.
At present, BMI is leaving its forecasts for the mining industry on hold while we wait to see how the situation unfolds. However, we would warn that there may be perhaps be a downside risk to some of our future growth forecasts, should the rhetoric from mining company CEOs be backed up with the actual cancellation or postponement of planned investment into Australia.
China’s Acquisitive Streak Continues
Early 2010 has seen a continuation of moves by China to acquire stakes in Australian mining assets. In January 2010, it was reported that Zijin Mining had been successful in its AUD547mn bid for Indophil Resources. This follows several high-profile purchases of Australian mining assets over the course of 2009, including China Minmetals’ US$1.69bn takeover of OZ Minerals and Yanzhou Coal’s US$3bn takeover of Felix Resources. Indeed, already in 2010, Yanzhou has stated that it is looking for more acquisitions in the year to come. BMI expects China to maintain strong levels of investment into the Australian mining sector during 2010.
New Data:
For 2010, BMI has made significant changes to the way in which we forecast mining data. As well as using local statistics agencies and associations, we now also draw on the expertise of the UN’s Industrial Commodity Statistics Database, the US Geological Survey and the World Bureau of Metal Statistics for our historical export and production data. We then forecast this data using our own proprietary econometric model. Human intervention also plays a necessary and desirable role in our mining forecasting; experience, expertise and knowledge of industry trends and developments ensure that we can spot likely future changes and anomalous data that a purely mechanical model would not.
Country Overview:
Hosting a gamut of metals and minerals including iron ore, nickel, bauxite, copper, gold, silver, uranium, diamonds, zinc and coal, Australia is a world leader in mining. Australia lies within the top five for production of most of the world’s key minerals. The mining industry is a significant contributor to Australian GDP.
Owing to its exceptional geology, Australia is home to some of the biggest names in the global mining industry. Multinationals operating in the Australian mining industry include locals BHP Billiton and Newcrest, Rio Tinto, and Xstrata.
Foreign investment rules are liberal and encourage inward investment. Mergers and acquisitions (M&As) are subject to scrutiny by the Australian Competition and Consumer Commission (ACCC). The country has well-defined regulatory bodies and a well-established legal system that can be described as investorfriendly. In the case of specific mineral exploitation, the authorities now consider uranium mining proposals on a case-by-case basis.
Industry Forecast:
After a difficult 2009, BMI is optimistic on the outlook for Australia’s mining industry over our newlyextended forecast period to 2014. We believe that growth can average 6.8% over the coming five years. Demand for Australian minerals will remain strong from Asian nations, notably China.
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