Global miner Rio Tinto described Australia as its top sovereign risk on Monday and said it was reviewing all investments there as its raised pressure on Canberra to overhaul its planned new mining tax.
The comments from Rio Tinto, the country's biggest iron ore producer, helped drive the Australian dollar down against the greenback and the yen by more than 1 percent, on rising concerns that miners could deliver on their threats to pull investments.
This is my number one sovereign risk issue on a global basis, Chief Executive Tom Albanese told reporters, noting that the tax, to be introduced in 2012, had set up the prospect of a long period of uncertainty which was corrosive to new investment.
If we are dealing with a, say, two-year extended period of time... in that period, we'd be asking our managers to evaluate it on a worst-case basis, he said, adding that capital would shift in the meantime to other resource-rich nations like Canada.
His iron ore chief, Sam Walsh, added in the same briefing: We are facing an extended period of uncertainty here and that in itself is a bad thing in that it's delaying projects.
Prime Minister Kevin Rudd unveiled the tax this month, arguing the government was not receiving its fair share of the resources boom, which helped the economy avoid recession during the global financial crisis, and now threatens to overheat it.
Rudd has put the tax at the center of his campaign to win re-election at polls expected around October. It is the cornerstone of his promise to return the fiscal budget to surplus by 2012/13, to cut the company tax rate and to indirectly fund another pledge to raise national retirement incomes.
But miners are waging a high-stakes political campaign to have the tax defeated at the election or, if Rudd is returned to power, to at least negotiate substantial changes to it.
It is threatening to pull billions of dollars of investment, with iron ore miner Fortescue Metals Group alone threatening to abandon $15 billion in new iron pre projects.
To date, though, no major project has formally been ditched.
(Reporting by James Regan; writing by Mark Bendeich; Editing by Balazs Koranyi)