Tax Is Cause Of Uncertainty In Australian Mining Sector

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

26 August 2011

Grant Thornton International’s new Australian Mining Report ‘Facing an uncertain future: government intervention threatens the global mining sector’ warns that increased government intervention in the mining sector is causing high levels of uncertainty among both companies and investors. It says that this intervention threatens not only the long-term growth of the resource sector, but also that of the global economy.

Last July the government announced new resource rent taxation arrangements would apply from July 1, 2012. Under the new framework a new minerals resource rent tax (MRRT) regime will apply at a rate of 30% to the mining of iron ore and coal in Australia, and the current petroleum resource rent tax (PRRT) regime will be extended to all Australian onshore and offshore oil and gas projects, including the North West Shelf.

Many large resource companies have been vocal about the impact of uncertainty surrounding proposed government intervention from both the State and Federal governments, further indicating that if this uncertainty persists they will scale down their investments in Australia and pursue alternative mining opportunities overseas.

The report says that this should ring alarm bells for Australia’s government. Mining was expected to generate 7% of Australia’s GDP in 2010-11, and Grant Thornton says it is not a sector the government can afford to alienate.

According to the report, increasing and unpredictable intervention across the world’s leading mining jurisdictions is adding uncertainty to a sector already laden with risk. Changes to taxation policies, nationalization issues and environmental legislation are pushing complexity to acute levels for mining companies and lead to even higher commodity prices. Without clarity over the type and extent of proposed government interventions, the development of the mining sector is in danger of stagnating, ultimately threatening global economic growth.

Scott Griffin, National Head of Resources and Energy at Grant Thornton Australia, said that: “Intervention is having a real impact on the Australian resource sector. We are expecting to see projects delayed and investor confidence has already been eroded. Resource projects are long-term in nature and require a stable regulatory framework. The government must take action to remove uncertainty and position Australia as an attractive country for long-term investment in the resource sector.”

Mark Zastre, global leader for mining at Grant Thornton International, asked: “How can companies plan and operate successfully when governments keep chopping and changing the rules? The mining companies I talk with are really concerned about the threat posed by government intervention. They are finding it increasingly difficult to get funding, as the uncertainty and risk of intervention is putting investors off. Clients around the world fear that if uncertainty rumbles on, the threat of the sector suffering long lasting damage will become even greater.”

“China’s Iron and Steel Association chief recently said that Chinese steelmakers will not be able to accept rising costs from the Australian iron ore mining tax, as steel prices will reach a ceiling and downstream users won't absorb rising costs. This can disrupt supply chains and have knock-on effects to the Australian economy.”


Scott Griffin added, “In Australia we have recently undertaken research to identify the major issues affecting junior mining and exploration companies. Grant Thornton International’s global mining report mirrors our research. For example, more than 85% of respondents said that the Australian Government’s Mining Resource Rent Tax legislation is having an unsettling impact on the local resource sector. Moreover, our research shows that almost 80% of junior miners will be looking for offshore funds to support their exploration activities. Without regulatory stability it will be very difficult to attract these funds.”

According to Grant Thornton International, the wave of intervention in mining around the world reflects the sector’s status as an “easy target” for many governments.

Mark Zastre added: “Where they are looking to boost their revenues, governments see mining as a thriving, profitable income source. But this is creating problems. In Australia, the federal government’s proposed new tax is taking another slice of the pie in addition to existing state royalties, leaving some mining projects in limbo as to whether they have sufficient commercial return.”

"I would urge mining companies around the world to ensure that their financial plans and strategies factor government interventions into multiple tax and environmental scenarios, and that their key risks are articulated to investors.”

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