Global miner BHP Billiton appeared to soften on Monday its opposition to a new Australian mining tax, saying the levy should apply only to new projects, while the government signaled it might be open to compromise.
The market capitalization of the ASX 300 Resources <.AXKR> has contracted by almost A$40 billion from mid-April highs when the government announced the new tax, which would be the world's stiffest on mining companies.
Investors certainly have reacted coolly to the proposed new tax, CommSec chief economist James Craig said on Monday.
At face value investors appear to have over-reacted to the proposed resource super-profits tax. The proposal is in its early days and legislation may not be submitted for another 18 months, but as always it is uncertainty that is the key issue.
Miners had previously appeared to present blanket opposition to the new 40 percent tax on super profits, warning it would damage Australia's resource sector, which is credited with saving the country from recession during the global downturn, thanks to China's hunger for industrial raw materials.
Criticizing the tax, Jac Nasser, chairman of BHP Billiton Ltd/Plc , told shareholders in a letter on Monday that future investment decisions depended on a review of the tax, and urged that it should only apply to new projects.
Any reform proposal must only apply to new investments, not to existing investments, Nasser said in his first comments on the planned tax, which is due to be legislated around mid-2011.
The energy and mining sector has bitterly opposed the tax, with heavyweights BHP, Xstrata Plc and Rio Tinto Ltd/Plc now reviewing new investments in the country.
The proposed super tax fundamentally, abruptly and unfairly changes the rules of the game, said Nasser, adding BHP had no issue with taxation reform, saying the miner paid its fair share of taxes, or A$6.3 billion in 2009/10.
GOVERNMENT SEEKS QUICK END TO TAX TALKS
Resources Minister Martin Ferguson said the government recognized the new tax could hurt investment and aimed to wrap up tax negotiations quickly.
The government was committed to finding a middle ground on the tax, he said, adding that miners and the government had reached agreement on previous controversial resource taxes.
This is important because it demonstrates that, inevitably, governments and industry find a middle ground with these reforms that accommodates both the best interests of shareholders and the national interest, said Ferguson.
One area of possible compromise is the level where the new tax kicks in. The Treasury's head mining tax negotiator will meet miners on June 10 to talk on possibly moving the approximately 6 percent tax trigger, based on long-term sovereign bond rates.
Ferguson warned the tax could put on ice the final investment decisions of three major coal-seam gas export projects, owned by energy firms Britain's BG Group , Australia Santos Ltd and Origin Energy Ltd , he said.
But some miners are still pushing ahead with new projects.
Gindalbie Metals Limited is going forward with a A$175 million capital raising to assist with development of its A$2 billion Karara Iron Ore Project in Western Australia.
Liquefied Natural Gas Ltd has received a key environment approval for its proposed Gladstone gas export project.
And Chinese steel makers Sinosteel and Anshan Iron and Steel Corp will go ahead with planned Australian investments despite the tax, the China Daily reported last week.
TAX LINKED TO PM RE-ELECTION
Australian Prime Minister Kevin Rudd has made the new tax a cornerstone of his 2010 re-election bid, linking it to a return to surplus three years early in 2012-13 and lower company tax.
Rudd demands miners pay more tax, arguing the minerals they export belong to the Australian people, but has said the government will negotiate tax details.
Treasurer Wayne Swan, in Perth to meet with mining executives, said many were already bracing for higher tax bills.
Many acknowledge to me that there will have to be a bit more paid, that the Australian people haven't been getting their fair share for their 100 percent ownership of these resources, Swan told Australian Broadcasting Corp. radio.
The latest taxation office data showed miners were not reaping super profits, ranking the gross profit ratio for mining 11th of 19 industry sectors in 2007/08, said CommSec's James.
Despite the signals from both miners and government of a possible compromise, the war of words over the tax persists.
Two new polls on Monday found Rudd faces a growing risk of losing the next election, with his government's support locked with the opposition at 50 percent, despite efforts to win back voters with the new tax.
An August deadline has been set for submissions on the tax to be made to the Treasury, which will then produce a report on the tax, after which the government will draft the law -- a process that will not be wrapped up until after the next election, leaving little reason for compromise on the tax until 2011.
(Writing by Michael Perry; Editing by Clarence Fernandez)