Australian Mining Restarts Investments After New Tax Proposals

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

09 July 2010

Indications are that the Australian government’s decision to introduce a minerals resource rent tax (MRRT), instead of a more onerous resource super profits tax (RSPT), is encouraging the mining companies in the country to resume their planned investments.

In a letter from its Chairman, Jac Nasser, to its shareholders dated July 6, BHP Billiton reiterated its belief that “tax reform that is prospective, competitive, differentiated and resource-based will ensure investment in the Australian mining industry is not discouraged,” and then pronounced that it was “encouraged that the proposed MRRT is closer to meeting these principles than the original RSPT.”

BHP Billiton feels that, through the MRRT as proposed by the government, “a good foundation has now been established on which an effective tax can be implemented.” However, Jac Nasser continued: “There is still a great deal of detailed work to be done before this tax is enacted and its impact is certain.”

He added that the company “will work with the government to ensure that the final outcome of the minerals taxation proposal maintains the international competitiveness of the Australian resources industry and is in the long term interests of all Australians.”

In the meantime, and also on July 6, Xstrata announced that it would recommence AUD186m (USD157m) of planned investment into key Queensland projects, including early works and exploration activities associated with its Rolleston West, Sarum and Wandoan thermal coal projects.

It confirmed that the investment decision had been made following the government’s announcement of the proposed replacement of the RSPT with the MRRT. It said that “the revised proposal represents significant progress towards a minerals taxation regime that will satisfy the industry’s core principles of prospectivity and maintaining international competitiveness.”

The Chief Executive of Xstrata Coal, Peter Freyberg, believes that, after discussions with the government: “There is now an improved shared understanding as to what drives mining investment decisions and the importance of a stable long term fiscal regime.”

He added that: “Today’s decision effectively lifts the suspension on expenditure announced by Xstrata last month and allows the next stage of planning for this internationally significant Wandoan project to proceed.”

If finally approved as expected in the second half of 2011, the AUD6bn Wandoan Coal Project, and associated infrastructure, would provide over 3,000 jobs throughout construction and operation over the next five years and open up a major new export region for Queensland.

It has also been reported that Rio Tinto has said it would restart its feasibility studies into the expansion of its iron ore project in the Pilbara region of Western Australia. That project would expand production at a total cost estimated to be up to AUD12bn.

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