Australian Mining Company Says 30% Tax Is Unfair

by Mary Swire, Tax-News.com, Hong Kong

15 June 2011

Fortescue Metals Group (Fortescue), Australia’s third largest ore miner, has dismissed the Australian Government’s draft legislation for the introduction of the Minerals Resource Rent Tax (MRRT) as “disappointing and economic vandalism”.

The draft legislation was unveiled last week, after the Government had consulted with BHP Billiton and Rio Tinto, the largest and second largest iron ore producers, and Xstrata, a major coal producer. The tax, which is planned to take effect in July 2012, is expected to raise up to AUD7.7bn (USD8.1bn).

Fortescue Chief Executive Officer Andrew Forrest said the incomplete draft legislation was a repeat of the recommendations from the Policy Transition Group and included little feedback from the wider industry’s views.

“What we have in the MRRT is an extension of the Resource Super Profits Tax (RSPT), which Treasury recognized would trigger negative growth in mining capital investment,” Mr Forrest said.

“If the RSPT had been introduced, Australia would be facing economic burdens similar to the US and Europe. It has only been the iron ore and coal industries which are keeping Australia’s head above the waterline.

“What we have in the MRRT is a secret deal between the Government and three big multinational mining companies. It was designed to deliver benefits solely for those three companies and in return assist the Government to ultimately win an election. Nothing more and nothing less.

“The MRRT delivers enormous benefits to the multinational companies which can fund projects from their own balance sheets. The impact of the MRRT is that it creates a cost impost on companies requiring debt funding, like Fortescue and every other Australian mining company seeking to develop new projects. Subsequently, we cannot uplift the value of our assets at huge market value, which is what BHP Billiton and Rio will be entitled to do.

“Similar to the RSPT, the rest of the iron ore industry is penalized under the MRRT as it is companies like Fortescue which have to carry the burden of the MRRT. It is a negative on those companies seeking to develop projects, it will dry up the pipeline of exploration projects which in turn can only dampen national economic growth.

“To penalize only the iron ore and coal mining industries at a time when they are the mainstay of the national economy is lunacy. And what’s it to pay for? A national broadband system that will be obsolete before it is even turned on.” Mr Forrest said Prime Minister Julia Gillard and Treasurer Wayne Swan have been held hostage by three multi-national mining companies.

“The MRRT is unfair, unworkable and sets a new low in Australian taxation benchmarks. The Prime Minister and the Treasurer have no idea of the pup they have been sold by the three big mining companies.”

Mr Forrest and other Fortescue executives met in Canberra on Tuesday with Treasurer Wayne Swan, Resources Minister Martin Ferguson, Independents Bob Katter and Andrew Wilkie, and Opposition Leader Tony Abbott to voice their concerns about the MRRT in an effort to urge the Government to amend the legislation to a broader base, as was the original intention of the tax review process.

Along with expressing disappointment at the incomplete nature of the draft legislation (which includes 170 pages of appendices covering 161 pages of draft legislation) the Fortescue team argued that the market valuation of upstream assets favours large well established companies; the MRRT doesn't help companies seeking to develop projects (these get no credit for their resources); the MRRT discriminates against projects utilising debt finance, helping to secure the dominance of big companies that can finance off their balance sheets; and as a result of the MRRT, the relative NPV impacts hits new entrants harder than established companies.

It is anticipated that the Association of Mining and Exploration Companies, which represents the smaller businesses in this industry, will revive its lobbying efforts which included a major advertisement campaign against the tax last year.

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