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Mining Stocks Hit on Resource Tax Fears (BHP, RTP, VALE, AU, ABX, NEM)

May 3, 2010

By Jeff Reeves, Editor, InvestorPlace

According to news reports, Australia is considering the possible introduction of a 40% resources tax on companies. As the world’s biggest exporter of iron ore, alumina and coal and one of the key gold miners in the world, the move could seriously curtail the mining business there – and hurt major mining stocks like BHP Billiton (BHP), Rio Tinto (RTP) and Vale SA (VALE) as well as Australia gold miners AngloGold Ashanti (AU), Barrick Gold (ABX) and Newmont Mining (NEM).

Among the worst hit will be the Australia gold miners. Here are the operations of gold stocks that will be affected:

• AngloGold Ashanti (AU) relies heavily on its Sunrise Damn mining operations in Australia, which accounted for 11% of the company’s total production a few years ago.

• Newmont Mining (NEM) only recently began ramping up operations in Australia, purchasing 100% of the Boddington gold mine in the country by buying out AngloGold Ashanti’s stake in June of 2009.

• Barrick Gold (ABX) operates eight mines in Australia and one in nearby Papua New Guinea, accounting for 18 million ounces of proven and probable gold reserves and about 13% of ABX total reserves.

The large mining conglomerates like BHP Billiton (BHP), Rio Tinto (RTP) and Vale SA (VALE) have the luxury of vast operations on many continents so they will be able to avoid a severe hit due to diversification. However, there’s no denying that they will take their lumps if they can’t ramp up operations elsewhere to offset the losses. For instance, Merrill Lynch & Co. estimates indicate that BHP Billiton Ltd. may have its earnings cut by 19% should a resource tax in Australia be applied. As the world’s biggest mining company with annual revenue of more than $40 billion, that isn’t chump change!

It remains to be seen if the tax will be applied, since companies in all sectors are decrying the move as anti-business. However shares of many mining stocks are down in trading today on fears that the 40% tax will become a reality. BHP stock is down more than 2% as of this writing, RTP stock is down over 5% and Vale stock is off almost 2%. ABX and NEM are both off about 1.5%. AU stock is flat as of this writing.

As of this writing, Jeff Reeves did not own positions in any of the stocks mentioned here.