Australian Miners not best pleased with proposed 40% tax

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One of the risks to investment in the mining sector is that commonly known as geo-political risk, which has now cast its dark shadow over Australia as the Rudd government look to raise more money from one of her booming enterprises.

We kick off with a snipit from the BBC as follows:

Mining group Xstrata has halted investment in two projects in Australia because of the government’s proposed new tax on mining profits. It said it was shelving investment worth 586m Australian dollars ($500m; £338m) in two mines in Queensland. The investment is part of a planned A$6.6bn development in both of the projects, which Xstrata said would have created 3,250 new jobs. Australia’s government is planning a 40% tax on mining profits from 2012.

Last month, Australian iron ore miner Fortescue Metals threatened to abandon $15bn (£10.2bn) of new projects unless the plans for the mining tax were watered down or axed.

Bad news travels fast as we can see in this article from Xinhua:

CANBERRA, June 5 (Xinhua) — The federal government’s 61 billion dollars (50.3 billion U.S. dollars) Future Fund called for the proposed mining super-profits tax to be completely revamped or abandoned because it is a risk to investment and a short-sighted use of the nation’s resources, local media reported on Saturday.

David Murray, the former Commonwealth Bank chief executive who is the chairman of the Future Fund, on Friday joined a chorus of business leaders decrying the design and implementation of the resource super-profits tax.

Murray described the mining tax as significantly flawed, saying it robbed future generations and represented a risk to Australia’s international investment reputation.

In an interview with Business Spectator, Murray said that if Australia could not “achieve a design that does not penalize the existing projects — that’s a sovereign risk issue and a design that does not discriminate between recurrent spending and long- term intergenerational wealth creation — if those things can’t be done, the tax should be abandoned.”

Murray also said it did not matter in the longer term if the budget were returned to surplus in three or four years’ time and that “this tax could cause more trouble”. “It’s a long-term tax being applied to a short-term purpose, really, that’s where the problems arise,” Murray said.

An overview is provided by Mbendi.com as follows:

Australia is a major global producer, containing 26% of the world’s reserves. It is also the world’s second largest producer after Canada, with mine production touching 8,931 t of Uranium in 2003. Exports in 2003 were estoimated at 9,614 t valued at A$398 million.One of Australia’s largest producers is Energy Resources Australia (ERA), a subsidiary of Rio Tinto. ERA’s operates the Ranger mining operation as well as developing the Jabiluka prospect in the Alligators River region, east of Darwin in the Northern Territory. However, the Jabiluka development has run into several problems with environmental agencies.

Three uranium mines operated in Australia in 2003: Ranger open pit (5,065 t in 2003), Olympic Dam underground mine (3,176 t in 2003), and the Beverley (689 t in 2003).

During 2003, 9.0 Mt ore were mined at Olympic Dam and the processing plant treated 8.4 Mt ore with an average grade of 2.4% Cu and 0.63 kg/t of uranium. The Beverley ISL mine was extended from the North orebody into the much larger Central orebody and plant capacity expanded to include a third train of ion-exchange columns..

The Western Australian Government has prohibited the mining of uranium for nuclear purposes from any mining lease granted after June 2002. The policy was ratified with an amendment to the Mining Act, which prohibits the mining and export of uranium for nuclear purposes. There are no uranium mines in Western Australia, but large deposits occur at Kintyre and Yeelirrie.
Since 2006 40 percent of the world’s known uranium reserves are found in Australia.

As investors in uranium stocks we can only hope that something can be worked out that does not derail the mining industry altogether, taking uranium with it.