aul trucks are seen at the Newcrest Mining Cadia gold mine, AustraliaHO
The world's most powerful mining companies have come out swinging against Australia's proposed new resources tax, threatening to pull new projects and cutting the value of existing ones.
Miners operating in Australia have lost billions on the markets since the so-called "super profits tax" was announced earlier this month.
Now those companies are re-examining their investment in the mining-rich nation, and adding it to their list of politically risky places to do business.
Australia-based BHP Billiton Ltd. , the world's largest miner, says the proposed tax could impact billions worth of expansion projects in the country.
That includes the multibillion dollar expansion of the Olympic Dam copper, uranium and gold mine in South Australia.
London-based Rio Tinto PLC RT s examining its investments in Australia, which is home to its core iron ore and coal businesses. It recently announced the restart of expansion plans for its Canadian iron ore operations, citing the "attractiveness of investing in Canada."
The proposed tax plan also led Anglo-Swiss miner Xstrata PLC to suspend its regional exploration program. That decision will also impact junior mining companies in the region who were part of the plan.
The proposed tax has also had a ripple effect on merger activity in the industry.
U.S. coal giant Peabody Energy recently cut its takeover bid for Macarthur Coal. That led Macarthur to call off an agreed merger with fellow Australian miner Gloucester Coal late last week, as it considers Peabody's cheaper price.
If passed, the 40 per cent tax would take effect in July 2012. It would result in a corporate tax rate of about 58 per cent for miners such as BHP, from a current level of just over 40 per cent.
The proposal is being viewed as an election year tax grab by Australia's ruling centre-left Labour government of Prime Minister Kevin Rudd, since it will boost government revenue by about $2.65-billion (U.S.). That is expected to help pave the way for a government surplus.
The Australian government vowed Sunday to stand firm on the tax plan, despite widespread criticism from the world's leading mining companies and recent opinion polls showing its support is slipping.
Officials promised "generous transitional provisions for existing projects" and said the new tax is replacing an older, less efficient system that was more like a royalty.
"The miners know in their heart of hearts that they are going to have to pay a bit more because the royalties regime has not kept pace with the value of this resource, which is 100 per cent owned by the Australian people," Australian Treasurer Wayne Swan told Australian Broadcasting Corporation television.
The conservative opposition has vowed to kill the proposal if voted into power in an election expected as early as this fall, and is launching a media campaign in Australia this week to fight the tax. The opposition argues the mining industry helped Australia avoid a recession during the recent global economic meltdown.
Some believe the 40 per cent proposal is a worst case scenario, and could be scaled back as a compromise.
For miners outside of Australia, the worry is that the tax plan could spread to other nations.
"From Australia today, it is likely to be Chile tomorrow and Brazil the day after," BMO Nesbitt Burns said in a recent report.
The proposal is expected to drive away potential future investment in Australia, which is already in stiff competition for exploration dollars from regions such as Latin America, especially Peru and Chile, as well as North America, and increasingly Africa.
"Those companies who can, may choose to explore where they see the best potential returns from successful finds, as Xstrata's recent announcement about putting Australian copper exploration on hold in the country demonstrates," Halifax-based Metals Economics Group said recently.
- with files from Reuters