Australian mining tax hits projects

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Australian mining tax hits projects

International investors are fleeing Australia’s resource sector as a result of the government’s decision to impose a new 40 percent mining tax, a top mining executive has said.

By (Reuters)

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Published: Sun 23 May 2010, 10:57 AM

Last updated: Mon 6 Apr 2015, 9:28 AM

Fortescue Metals Group chief executive Andrew Forrest said the resources sector had saved Australia during the global downturn from a crisis like that of Greece, and the new tax threatened its future by deterring investment.

In a recorded interview with the Australian Broadcasting Corporation (ABC) broadcast on Sunday, Forrest said bankers had pulled out of planned new projects by his company since the tax was announced, while firms with Australian assets were “absolutely getting hammered” in the share market.

Quoting an official note from a Chinese consulate, Forest also said it was clear that Australia’s competitive advantage to China, a key market for its mineral resources, was now gone.

“Look they’re fleeing Australia unfortunately. You can see that in the share prices of all Australian asset resource companies. You can see the share price of those companies with offshore assets. They’re staying very stable,” Forrest told the ABC programme Inside Business.

“The resources sector saved us from a situation like Greece. It was the powerhouse which drove us through the global financial crisis. It was that resources powerhouse which continued our ability to invest right throughout those down cycles.

“Now we don’t have that ability to invest ... quite simply those revenues needed to support future projects are gone.”

Analysts say Fortescue Metals Group has been among the hardest hit by the government’s decision earlier this month to introduce the new Resource Super Profits Tax.

The new tax is set to raise about A$12 billion ($11 billion) in its first two years and is due to be implemented from July 2012. Since it was announced a series of mining companies, including Fortescue, have suspended major investment projects.

Forrest said the structure of the new tax meant miners had to pay the tax before they paid off interest and pay back capital to bankers, making it impossible to raise finance for new projects. He compared the situation to applying for a mortgage.

Bankers had pulled out of some planned Fortescue projects, he said, including the $9 billion Solomon Hub project in Western Australia state, to create a 160 million tonnes a year iron ore mine.

China is a key customer for Australia’s resources, particularly iron ore, and Forrest said a note from a Chinese consulate had made clear that the tax had undermined Australia’s competitive advantage.

“(It) said, Australia’s competitive advantage to China, over Brazil, over India, over these massive competitors Australia competes against, that competitive advantage we did have is now gone,” Forrest said.

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