Mining Firms Delay Australian Investment

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

11 May 2010

The mining companies BHP Billiton and Xstrata have both said that Australia’s proposed 40% resource super profits tax has cast doubt on the continuation or expansion of their exploration and investment in the country’s mining industry.

Xstrata Copper’s North Queensland Division has announced the suspension of its regional exploration programme for prospective targets in the Mount Isa and Cloncurry districts, in conjunction with junior mining companies, which had involved planned expenditure of around AUD30m (USD27m) over the next three years.

Its chief operating officer, Steve de Kruijff, said: “We have decided to suspend exploration activities in north Queensland until there is greater certainty on the fiscal regime for future mining developments. The proposed tax has introduced great uncertainty about the potential impact on the economics of developing resources into viable operations in Australia.” “

“It would also change the relative economics of these prospects compared with exploration programs that Xstrata Copper is pursuing in other parts of the world,” he added. “It is not possible to justify Xstrata Copper’s ongoing funding of additional exploration activities when the fundamental economics of the industry in Australia are being challenged.

He concluded that Xstrata is “very concerned that the proposed tax increases announced by the federal government will seriously affect the sustainability of our business activities in Queensland.”

In like manner, during a television interview, Marius Kloppers, BHP Billiton’s chief executive, has said that approval of the new tax would endanger BHP’s projects in Australia, particularly the expansion of its Olympic Dam copper and uranium mine in South Australia, which, it has been estimated, would entail a further investment of up to AUD20bn.

While his opinion was that the super profits tax had not had any immediate impact on BHP’s proposed iron joint venture with Rio Tinto, which would pool their operations in Western Australia, he indicated that no decision would be forthcoming on the company’s other investment projects in Australia.

He cited the uncertainty that the proposed new tax was causing, together with the prospect that BHP would have to pay much more tax in Australia than in other countries where it operated.

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