Miner Rio Tinto Plc said Australia's planned new resources tax is the biggest sovereign risk issue on a global basis and termed it as harmful to the country's investment reputation.

Rio Tinto, which generates bulk of its revenue from iron ore, coal and other commodities from Australia, is already conducting a review of the potential tax impact on its Australian operations.

“The tax had set up the prospect of a long period of uncertainty which was corrosive to new investment. From my own perspective, this is my number one sovereign risk issue on a global basis,” Rio Tinto’s chief executive Tom Albanese said.

The proposed levy has created enormous uncertainty for investment decisions by the Australian miners and it would make it more difficult for smaller explorers to raise funds for exploration. Already some mining companies have put their Australian projects on hold and plan to concentrate in Canada.

Rio's fellow miner BHP Billiton Ltd. had said the proposed tax would have the unintended effect of dramatically slowing investment in Australia and would place the country in an uncompetitive position globally.

The Federal Government?s economic modelling of the Resource Super Profits Tax (RSPT) is theoretically and fundamentally flawed, as it takes no account of decision making in the real world, said Simon Bennison, chief executive of Association of Mining and Exploration Companies.

The Australian government will introduce a Resource Super Profits Tax on July 1, 2012 at 40 percent on profits made from the exploitation of Australia’s non?renewable resources.

Citing a comment from UBS, International Business Times had earlier reported that both BHP Billiton and Rio Tinto look cheap at current prices despite macro headwinds. UBS believes the mining stocks have been underperforming due to fears about restraints on Chinese growth, euro-zone debt fears and the proposed RSP tax in Australia.

UBS said the new tax could impact BHP's NPV by 14% and Rio's by 16%. However, even with this factored in, the stocks look cheap and investors won't get many opportunities to buy the miners at discounts of about 30% to NPV. The broker retains a preference for BHP over Rio for its better defensive nature, stronger balance sheet and forecast earnings growth of 41% versus 36% for Rio.

In Australia, governments allow private firms to exploit non?renewable resources and in return collect a charge for resource production — predominantly through taxation arrangements. The levy will remove impediments to mining investment and production. Australia’s current resource charging arrangements do not recognize the cost of resource investment and production. This is largely due to those arrangements not responding to changes in profits.

According to the Australian government, modelling by Econtech suggests that under an RSPT scheme, mining investment will rise by 4.5 percent, local jobs by 7 percent and mining production by 5.5 percent in the long run.

On Monday, the Australian dollar rose to US$0.8365 from a nine-month low of US$0.8073 on Friday.

Rio Tinto closed at A$64.15, up 3.8 percent, while BHP Billiton ended up 2.8 percent at A$37.80 on the Australian Stock Exchange.