Mining Tax Grab - How will it pan out?

[Trembling Hand]

This post is just bait for the habitual emotional ranters who never study the detail or read the fine print, but just love to whinge and make a lot of noise about whatever is the flavor of the month. :

If that was the case then you would of course know that the board had already signed off on the project recently. Just in December.

 

[Bushman]

The Xstrata example smells quite a bit of political oppertunism in a similar vein to Clive Palmers now political art form. Isn't the canned extension of their near depleted open cut copper project, to underground operations, with what I've heard one analyst say is about lower production rates and about double the overheads of open cut, much more about the fundamental viability of the project than anything else?

Disagree about the political opportunism bit. Xstrata is a global investor looking for projects with the lowest after tax IRR. Decision is as simple as that. As TH noted, the copper project had been board approved pre RSPT.

Agree that Clive Palmer has not added much to the debate.

The RSPT will get up at some stage (much like the GST). It just wont be in its 'pure' form mainly because the government has bastardised this pure economic model by:
1. expecting the mining companies to raise the finance for their 40% ownership stake @ the government bond rate rather than stumping up the cash themselves; and
2. applying it retrospectively to depreciated assets.

Also, mate, it is good to be passionate and emotional about things in life. Otherwise it is all a bit Gordon Gekko is it not?

 

[Bushman]

How those greedy foreign investors view the tax. Still leaving some cards on the tables though. Rudd's assertion that he is going to drag negotiations on the RSPT out for some time is going to kill confidence.

Nothing emotive about the flow of capital. Lol.


From DJ News Wire:


LONDON (Dow Jones)--J.P. Morgan Chase & Co.'s (JPM) Ian Henderson, manager of $7 billion in natural-resource assets, has reduced his exposure to Australian mining assets, including Rio Tinto PLC (RTP) and BHP Billiton Ltd (BHP), due to concerns about Australia's proposed Resources Super Profits tax. Given the uncertainty created by the Australian tax proposal and subsequent suspension of mining projects by some miners, it was prudent for fund managers to also take precautions, Henderson said on the sidelines of a conference in London. "It's a reflection of an adverse situation," he added.

Henderson said he has reduced his holdings in Australian mining assets by $150 million and cut his investment in his largest shareholding, Rio Tinto, by a quarter, or $60 million to $70 million, as a result of the proposed tax.

Henderson said that Rio Tinto is "quite clearly" more affected by the
proposed tax than BHP Billiton. Rio Tinto is likely to be more adversely affected by the tax than BHP Billiton because about 72% Rio Tinto's earnings before interest and taxes, or EBIT, are exposed to the new tax as opposed to 67% for BHP, analysts at Canaccord Adams previously said a note.

 

[Whiskers]

If that was the case then you would of course know that the board had already signed off on the project recently. Just in December.

Yes that's true, but what has happened to the copper price since.

Copper was in a fairly steady uptrend until December, then it's had a pretty rough ride with the sharpest correction since the GFC, an unsustained spike to new highs, followed by a another sharp correction below 3.00.

There is also a question mark over demand with the Euro zone uncertainty and probably the most concerning point that the price has come off as stockpiles also appear to be depleating... a lack of demand concern.

Disagree about the political opportunism bit. Xstrata is a global investor looking for projects with the lowest after tax IRR. Decision is as simple as that. As TH noted, the copper project had been board approved pre RSPT.

That's true, but given the changing fundamentals governing the demand, stockpiles and price for copper, which has gone very erattically sideways since their initial decision to progress the project in December, to lower production higher cost underground development, it's interesting that those issues apparently had nothing to do with their decision to suspend further development.

I'm not saying the new tax wasn't in their thinking, but my point is given the changed world economic developments and the future of the copper price, the maths, suggest the fundamental project economics took a battering since December and probably have much more of an impact on the viability of going underground than the prospest of a bit extra tax a couple of years down the track.

Agree that Clive Palmer has not added much to the debate.

The RSPT will get up at some stage (much like the GST). It just wont be in its 'pure' form mainly because the government has bastardised this pure economic model by:
1. expecting the mining companies to raise the finance for their 40% ownership stake @ the government bond rate rather than stumping up the cash themselves; and
2. applying it retrospectively to depreciated assets.

Yeah, I don't dissagree here.

Also, mate, it is good to be passionate and emotional about things in life. Otherwise it is all a bit Gordon Gekko is it not?

True, but the gist of my provocative stir, is that we should stay unemotional about important fact finding and decision making... but certainly get passionate about enjoying your footy, family, mates etc.

 

[Trembling Hand]

Whisker you have to be kidding

You think the board of the Xstrata looks at the chart of the last 3 month of copper and pulls a 6 bil project? Just LOFrigginL

 

[Whiskers]

Whisker you have to be kidding

You think the board of the Xstrata looks at the chart of the last 3 month of copper and pulls a 6 bil project? Just LOFrigginL

More like 6 mnths TH, and yes all the CEO's, directors and project managers I've spoke to do watch price, supply and stockpile trends for the commodities they produce. They have to. It's their business to make forcasts and judgements about the future prospects for their goods.

Are you suggesting they would ignore commodity price and supply trends and charge headlong into the development of lower production, higher cost underground mining as the open cut comes to a close irrispective of the likely future price of copper?

The significant point that you seem to have missed, I repeat, is that copper has risen steadily back to near historic highs, but for the six months since the board decision to progress the project, the very distinct steady uptrend has changed to a very erattic sideways price movement coupled with falling stockpiles which would normally put upwards pressure on prices... but is not at present, suggesting concern about world economic growth.

 

[Trembling Hand]

Whiskers you are lost....... again! prices are about the same. full stop.

Either your trying to push BS or you're just an idiot.

 

[Whiskers]

Whiskers you are lost....... again! prices are about the same. full stop.

Either your trying to push BS or you're just an idiot.

Nah, you tried to tell me the AUD was not in a down trend, rather was quite bullish because it had spiked up to near record highs, not long ago. But I was proved right again. :

Just because the price (in isolation) is at a certain level means precious little. The issue here is the increased volatility, as I said at near record highs and the declining stockpiles which ordinariarly would be showing signs of upward price pressure, but currently is not and there is little evidence of near term future global demand to maintain prices even at current levels.

To get back to your original comment...

You think the board of the Xstrata looks at the chart of the last 3 month of copper and pulls a 6 bil project?

If they feared this GFC relapse (which has kicked in again since their decision last Dec to progress to underground development) could kill demand and the price again... they certainly would put that decision from last Dec on hold... just like many projects were scaled back or put on hold before.

 

[Trembling Hand]

Nah, you tried to tell me the AUD was not in a down trend, rather was quite bullish because it had spiked up to near record highs, not long ago. But I was proved right again. :

You're full of it. you said the AUD was going to fall and the shares would go up.

hahahahh how did that work out for you

I said risk currencies , commods, & equities are correlated. I was right your, again, so wrong.

 

[trainspotter]

You're full of it. you said the AUD was going to fall and the shares would go up.

hahahahh how did that work out for you

I said risk currencies , commods, & equities are correlated. I was right your, again, so wrong.

50% is a break even point?

 

[Julia]

David Murray, head of the government's own Future Fund has given the RSPT the thumbs down:

Mining tax has 'significant flaws': Future Fund chief
June 4, 2010 - 4:38PM

Australia's sovereign wealth fund called for the government's planned resources tax to be amended or scrapped, saying it risks eroding the country's appeal to investors.

''There are several significant flaws,'' Future Fund Chairman David Murray said in an interview posted on the Business Spectator's website. ''The tax has to be changed or abandoned.''

The tax shouldn't be applied to existing resources projects, Mr Murray said. Mining royalties could alternatively be directed into a wealth fund, he said.

Criticism from the Future Fund, a government-owned entity with $68 billion of assets, increases pressure on Prime Minister Kevin Rudd as Australian miners ratchet up their campaign against the planned 40 per cent tax on so-called super profits. Mr Murray said he'd be ``extremely concerned'' as a mining company.

''If we can't achieve a design that does not penalize existing projects, that's a sovereign risk issue,'' Murray said in the interview. ``If there's a change, there has to be some process of putting aside returns from resources depletion for the longer term. Unless we do that, we'll be directing resources taxes of one sort or another to recurrent spending of government, which will cause significant problems later.''

Bloomberg News

 

[Whiskers]

you said the AUD was going to fall and the shares would go up.

Yes, Aus shares are still in an uptrend from the bottom of the GFC, imo. More on that in the XAO thread a bit later.

The currency shakeout around the world of late and possible reversal is another substantial impact and consideration on the return of miners pre tax earnings.

The point is there is a whole lot more impacting the current earnings of miners and future decision making atm than just the proposed super tax.

I said risk currencies , commods, & equities are correlated.

But not a direct correlation as my charts of the XAO and AUD in the XAO thread showed. There are periods of substantial and prolonged divergance.

 

[Trembling Hand]

But not a direct correlation as my charts of the XAO and AUD in the XAO thread showed. There are periods of substantial and prolonged divergance.

lol whiskers you are a first class peanut. Please go and learn what a correlation is. Untill then you are a waste of bits & bytes.

Over and out.

 

[Julia]

Why?
If anything the 'big money' is more honest. They are supposed to be in business to make money, and should rightly be able to defend their means of doing so when the government is attempting to land them with a totally unreasonable, retrospective tax.

It is a tax grab because the tax is retrospective. Also, the retrospectivity means that 40% of these existing long-life mines will be nationalised. That, more than anything else, is preposterous! If they are fair dinkum about this tax, then they would value all retropsective mines at current market value and issue an upfront government bond (indexed at the long-term bond rate) at 40% of this value.

Julia,
A retrospective tax would have the companies paying the tax on last years profits. I do not believe this to be the case. If it is because the miners developed the mines thinking one regime of tax was going to stay forever, then they were/are dreaming. Governments change the tax arrangements of all types of industries all the time that affect the companies involved.

It is not called a retrospective tax unless it taxes previous arrangements (ie last years income)

brty

It is retrospective in the sense that it picks up exisiting long-life mines which are unable to benefit from the 40% capital rebate.

The RSPT will get up at some stage (much like the GST). It just wont be in its 'pure' form mainly because the government has bastardised this pure economic model by:
1. expecting the mining companies to raise the finance for their 40% ownership stake @ the government bond rate rather than stumping up the cash themselves; and
2. applying it retrospectively to depreciated assets.

Brty, David Murray's remarks yesterday also referred to the tax as retrospective, so perhaps the term now has a different meaning from that which you suggested?

Mr Murray agreed with the miners' claims that applying the tax to existing projects would deter investment, and that it would be better to put some of the revenue into a wealth fund.

"My view is that the tax has to be changed or abandoned," Mr Murray said.

"The worst thing that can happen is that the resources run down, we're still spending on welfare and we still have a current account deficit. That would be, for future generations, a seriously bad outcome.

"You've got to have a sensible collection of taxes and royalties when returns are strong, but you can't apply these retrospectively because you won't get investment."

Mr Murray said as a former banker he would have concerns about lending money for investment based on the government's proposed guarantee of 40 per cent of losses for a failed project.

 

[Whiskers]

lol whiskers you are a first class peanut. Please go and learn what a correlation is. Untill then you are a waste of bits & bytes.

Over and out.

Gees, it looks like ole Grumpy is back again.

Well I know what the normal meaning of a correlation is... maybe you can produce a definition or even an example for you meaning, relevant to the point in discussion!

C'mon 'Grumpy', put up an example, or shut up (your child like personal insults).

correlation [ˌkɒrɪˈleɪʃən]
n

1. a mutual or reciprocal relationship between two or more things
2. the act or process of correlating or the state of being correlated
3. (Mathematics & Measurements / Statistics) Statistics the extent of correspondence between the ordering of two variables. Correlation is positive or direct when two variables move in the same direction and negative or inverse when they move in opposite directions​

 

[Whiskers]

Brty, David Murray's remarks yesterday also referred to the tax as retrospective, so perhaps the term now has a different meaning from that which you suggested?

Julia, from what I understand the 'retrospectivity' aspect that some don't like is that the proposed new tax will apply to existing projects. Some only want it to apply to new projects. The new system isn't proposed to recalculate the tax of past years as Murray tends to carelessly imply.

If old projects were excluded it will tend to allow miners to milk every last dollar they can out of current projects under existing laws and turn the profit into a new project to get the max benifits of the new system.

Essentially a project like the Xstrata open cut copper project which is almost complete and planned to continue development os undergroung operations, could can the underground and milk out the opencut then call the underground a new and different project to get the max benifits including uplift from the new tax proposal.

In other words, it's a cynical attempt by the highly profitable miners to rort the tax system to get the best of both systems... low tax under the current system to finish current projects which would generate good profits which could then be invested in new projects where they get more deductions/rebates including the uplift on the extra profit they keep from the 'old' projects.

They want to double dip by excluding existing projects from the new tax so they have more cash to claim the uplift in the new scheme.

I reckon this is what all these project delays are more about than anything else. They like the idea of the higher deductions/rebates and especially the uplift for new projects, but are simply trying to quarantine as much profit as they can from existing profits to get an exponentional boost when converting to the new scheme.

Now having said that, I'm not necessairly advocating for the new tax, but given the rising levels of debt in the world, I'm just accepting that these types of new taxes are inevetable as one of three things WILL happen...

People will have to accept lower standards of living and lower gov expenditure, higher taxes to pay off debt or go bust individually and as a country. I just see the higher tax at the 11th hour as being the most likely course.

 

[stv]

I think the new resources tax is a good idea and it is good to see that the miners' will be paying us the aust people for the use of our resources.

Its alright for them to make $$s from mining, but maybe they have not been paying the aust people enough up until now is regards to mining our finite resources.

I also like Kevin, and am thankful that he is PM and not speedo Tony or honest John.

steve

 

[wayneL]

I think the new resources tax is a good idea and it is good to see that the miners' will be paying us the aust people for the use of our resources.

Its alright for them to make $$s from mining, but maybe they have not been paying the aust people enough up until now is regards to mining our finite resources.

I also like Kevin, and am thankful that he is PM and not speedo Tony or honest John.

steve

Ahhhh Australia.

Beautiful one day,

Socialist the next.

 

[-Bevo-]

I think the new resources tax is a good idea and it is good to see that the miners' will be paying us the aust people for the use of our resources.

Its alright for them to make $$s from mining, but maybe they have not been paying the aust people enough up until now is regards to mining our finite resources.

I also like Kevin, and am thankful that he is PM and not speedo Tony or honest John.

steve

Steve

State Governments sell lease to Miners on behalf of the people for the rights to mine a area in effect they are already paying the people for the use of that land they don't get it for free, then the investors take a risk on capital to develop projects plus pay a company tax and employees are taxed just as everyone else is, also think about the flow on effects to other people / businesses who benefit indirectly who also pay tax, now people like you because of Rudd think they own the minerals and want the profits too.

 

[dutchie]

The bottom line is that the money (profits) will be either spent by the mining companies (admittedly some will go overseas but profits of mining companies from other countries also comes to Australia) back into the Australian economy (new projects etc) or the profits will go to the government to spend in the economy.

I know who I would prefer to spend the money!