Australian (ASX) Stock Market Forum

Mining Tax Grab - How will it pan out?

Jump to new
pacestick said:
Under the proposed tax the smaller miners will pay less as per the below schedule

Just how cleverly was shown in a table produced in a note by the Treasurer recently (and reproduced below) showing estimates of the effective tax rates applying to projects. What it shows is the very deliberate design of an RSPT to lighten the tax burden on less profitable projects, encouraging investment in the projects that might otherwise have stayed on the drawing board. Higher return projects face a higher effective tax rate under profits taxation compared to royalties.


rate of return% tax rate royalties & 30%company tax tax rate rspt @28%



6 45.4 28
10 40.9 39
15 38.7 45.3
20 37.6 48.2
25 36.9 49.9
50 35.5 53.3
Click to expand...

Yeah, that's true to a large degree, but there is two large distinctions between the old and the proposed new system.

The old/current system effectively taxes new projects at a higher rate of their profits initially, then reduces as profitability increases. That is an illogical anomonoly that has crept into the system corrupted by decades of uncordinated regulation between the states and fed gov and makes it harder to get new projects up and running profitably.

Secondly, the proposed new system turns that net tax rate around, but doesn't allow financing costs to be used in carry costs that get an uplift at the bond rate. That is a deterent to taking on excessive debt to get a project up while effectively getting a bit of a subsidy (uplift) from the gov to expedite development to profitability starting with lower net tax rates, that increase as profitability increases.

So, as far as it helps some projects that were less profitable previously because of the inverted effective tax rate, thats true, but I can't see that it helps intrinsically unprofitable projects or heavily debt laden projects as indicated by Twiggy Forrest's problem. Twiggy's project may well be profitable, but I suggest he has probably tried to develop too big of a project too fast with too much debt than equity investment.
 
Whiskers said:
Twiggy's project may well be profitable, but I suggest he has probably tried to develop too big of a project too fast with too much debt than equity investment.
Click to expand...

That is why the miners are mad, changing the rules of the game to existing projects that have already been fully funded. But the government needs to apply it retrospectively to catch the high grade mines that can deliver super profits. This is the definition of regulatory risk, and investors hate this. But this is not a tax designed to win the 'hearts and minds' of sophisticated investors.

Interesting to hear Crean describe the tax as price neutral to China due to the prospect if increasing supply by making marginal projects viable.

The thing that annoys me is that Henry, Garnaut, Krudd et al keep banging on about how this resources are owned by all Australians. However, without equity investors taking on the substantial risk of exploration, the Crown land remains unimproved dirt with no value. That is why the 6% hurdle rate is ludicrous.

Also why is there not a RSPT on farming, and in particular the massive pastoral leases on Crown land in the NT and Qld? Surely we also 'own' that land and should get paid some rentals for it?

It is inconsistently applied, does not take the risk/return ratio into mind and harms Australia's reputation as an investment destination because of its retrospectivity. Ironically, it will also provides miners an incentive to invest in marginal projects?

Having said all that, I do support the replacement of the inefficient State-based royalty regime.
 
I should have added to my post that while these are the figures the treasurer has given and are probbaly accurate I dont believe that any start up miner will be encouraged to leap in because they in the end all want to maximise their profits . I offered the figures in response to someone who asked why it was seen as an encouragement to small miners.
 
Read post #112 ....... it's a CRACKER !

Soon there will be nothing left to tax at this rate of decline. FMG wiped 8% off the news they are not going with the 9 billion exploration due to the 40% SUPER TAX. YAY ...... If Rudd had done nothing and this "correction" we are going through would have slowed the economy enough. :banghead:
 
IIRC, FMG fell to around $1 when stock markets crashed in late 2008. 8% is just a minor speed bump for this company.

-------------------------------------------------------------------

Someone raised the prospect of this recently in one of the RRT discussion threads,

http://www.smh.com.au/business/mining-tax-contagion-set-to-spread-globally-20100520-vgdw.html

Another take on this is that if introduced globally it would obviously induce inflation if it does not stifle demand. This would be to the benefit of countries with net debt as it would reduce the real value of that debt.

How happy would China be with that ?
 
drsmith said:
IIRC, FMG fell to around $1 when stock markets crashed in late 2008. 8% is just a minor speed bump for this company.

-------------------------------------------------------------------

Someone raised the prospect of this recently in one of the RRT discussion threads,

http://www.smh.com.au/business/mining-tax-contagion-set-to-spread-globally-20100520-vgdw.html

Another take on this is that if introduced globally it would obviously induce inflation if it does not stifle demand. This would be to the benefit of countries with net debt as it would reduce the real value of that debt.

How happy would China be with that ?
Click to expand...

That is like comparing a cygnet to a swan .... speed bump? More like a Crusty Demons HELL JUMP !!

Still a major player with contracts to fill with China. Has a 30 year minesite still producing 25mt per annum. Was looking at expansion until you know what happened (Thank you Kev and your 40% tax)

True. But globally we are fragile in our needs market. We need China to pay buy our Iron Ore to help us pay our debt. Remember we are less than 0.00003% of the population. 6.3billion people in the world and we are 22 million?? Fiesty lot arent we !!
 
trainspotter said:
Read post #112 ....... it's a CRACKER !

Soon there will be nothing left to tax at this rate of decline. FMG wiped 8% off the news they are not going with the 9 billion exploration due to the 40% SUPER TAX. YAY ...... If Rudd had done nothing and this "correction" we are going through would have slowed the economy enough. :banghead:
Click to expand...
I don't like the idea of the tax, but lets not get too carried away. FMG is a mining company, they may jump around a lot, but they will mine. What else can they possibly do?

Lets not forget that there is an election coming up, so its unlikely the mining companies will quiten down before then. Afterall, if Australia introduces higher tax levels, many other countries are likely to follow.
 
trainspotter said:
. Was looking at expansion until you know what happened (Thank you Kev and your 40% tax)

!
Click to expand...

Personally think the whole " we not expanding because of the tax " story is a whole crock of crap personally ......... The tax is on PROFITS .. as a business one would think that expansion and taxable write offs would be a number 1 priority now and this new tax actually provides more incentive to create expansion and exploration opportunities by reinvesting the profits within themselves rather than having it taxed.

Just a bully boy story created by the miners to try and scare the guv into line again.

But hey im no accountant .
 
Bushman said:
That is why the miners are mad, changing the rules of the game to existing projects that have already been fully funded.
Click to expand...

Yeah, I reckon that's the main reason, cos there is nothing worse than having the rules changed after you've done all the forcasts and budgets for a project and have to do it all again to an unfamiliar system.

But as you also said, something needs to be done to improve the system and make it more equitable.

Also why is there not a RSPT on farming, and in particular the massive pastoral leases on Crown land in the NT and Qld? Surely we also 'own' that land and should get paid some rentals for it?
Click to expand...

Hey, steady on the farmers there Bushman. ;) But I agree the pastoral leases are mostly a gift to graziers. They were often for as little as $1 for many years with minimal maintaince requirements for the grazier.

The other side of the coin, that I was only thinking about again today, is the plight of farmers on the Darling Downs in Sth Qld where coal seam gas development threatens to destroy their land and livelyhood.

The antiquated laws in favor of mineral development need to be revisited to either make the miner pay restitution for lost income and guarantee the proper rehabilitation of the site, or buy the freehold.


pacestick said:
I should have added to my post that while these are the figures the treasurer has given and are probbaly accurate I dont believe that any start up miner will be encouraged to leap in, because they in the end all want to maximise their profits . I offered the figures in response to someone who asked why it was seen as an encouragement to small miners.
Click to expand...

pacestick, I'm not sure what you meant here in blue, unless you meant to put a comma in there (in red), then it sounds good for me.

trainspotter said:
Read post #112 ....... it's a CRACKER !

Soon there will be nothing left to tax at this rate of decline. FMG wiped 8% off the news they are not going with the 9 billion exploration due to the 40% SUPER TAX. YAY ...... If Rudd had done nothing and this "correction" we are going through would have slowed the economy enough. :banghead:
Click to expand...

trainspotter, I think you will find FMG's main problem is their high debt level/requirements to get what they want done, quickly.

Secondly, there is already a skills, supporting industry and equipment shortage, which is styfling many projects, such as delays for drilling rigs and testing laboratory services.

So if the proposed "SUPER TAX" wiped 8% off FMG's price how much did the volilatility in the world markets and metal prices wipe off... none?

The market action has been all fairly predictable, as you would see, if you would get onto more of the market threads... and realistically, precious little to do with the proposed super tax. I recall, along with a few others, pointing out the likelyhood of this correction in the share, precious metal and base metal prices and so far is behaving fairly predictabily... certainly not a disasterous market decline... hence the picture of the smileing cat, sleeping on it's back.

Oh, OK, just so you get it... nothing to disturb a nap over... or colloquially, nothing to get your nickers in a knot over. :p:

Trainspotter mate, I'll bet you London to a Brick, that our mining industry will not be ruined or shut up doors and go away as some alarmists (no names mentioned:p:) suggest, and will continue on regardles if this new tax is implemented as Rudd wants it, because there will still be profits to be had, maybe just not as big profits.
 
drsmith said:
IIRC, FMG fell to around $1 when stock markets crashed in late 2008. 8% is just a minor speed bump for this company.

-------------------------------------------------------------------

Someone raised the prospect of this recently in one of the RRT discussion threads,

http://www.smh.com.au/business/mining-tax-contagion-set-to-spread-globally-20100520-vgdw.html

Another take on this is that if introduced globally it would obviously induce inflation if it does not stifle demand. This would be to the benefit of countries with net debt as it would reduce the real value of that debt.
Click to expand...

Yeah, that's a good point. I reckon Germany is screwing the Euro bailout of Greece controversy to help their trade position and economy a bit a-la the so called US PPT.

I wouldn't be surprised, assuming Rudd does get some form of this tax through the senate, that it may work well for Aus down the track to be amongst the first to increase taxes... cos a lot of people don't seem to comprehend the seriousness of the debt problems of our competitors and the only real option they have is to increase taxes and cut services.

Also, most mineral prices are back up to levels comperable to pre GFC levels and are historically quite high, so t'is obviously better to do it now than at the bottom of the cycle.

How happy would China be with that ?
Click to expand...

I think they have been spreading their state owned corporate wings all around the world to source and secure long term contracts for vital commodities for some time now and may be protected from price rises to a large extent.

But I wonder what the average cost is of all their USD reserves? Are they using cheaply acquired USD's to pay for a lot of their commodities?
 
nunthewiser said:
Personally think the whole " we not expanding because of the tax " story is a whole crock of crap personally ......... The tax is on PROFITS .. as a business one would think that expansion and taxable write offs would be a number 1 priority now and this new tax actually provides more incentive to create expansion and exploration opportunities by reinvesting the profits within themselves rather than having it taxed.

Just a bully boy story created by the miners to try and scare the guv into line again.

But hey im no accountant .
Click to expand...
Nunno, I'm sure they would... if they could finance the project.

With the change in rules it appears the finance industry haven't responded positively, nor should they until the bill passes. Especially in the commercial sector, the most conservative lending path is the most likely path to be followed.

One does wonder if it is the RSPT itself which is the biggest problem, or merely the uncertainty it currently represents. I'm against it personally, but history may judge the latter factor to hold the greater impact in the short term.
 
Whiskers said:
trainspotter, I think you will find FMG's main problem is their high debt level/requirements to get what they want done, quickly.

Secondly, there is already a skills, supporting industry and equipment shortage, which is styfling many projects, such as delays for drilling rigs and testing laboratory services.

So if the proposed "SUPER TAX" wiped 8% off FMG's price how much did the volilatility in the world markets and metal prices wipe off... none?

The market action has been all fairly predictable, as you would see, if you would get onto more of the market threads... and realistically, precious little to do with the proposed super tax. I recall, along with a few others, pointing out the likelyhood of this correction in the share, precious metal and base metal prices and so far is behaving fairly predictabily... certainly not a disasterous market decline... hence the picture of the smileing cat, sleeping on it's back.

Oh, OK, just so you get it... nothing to disturb a nap over... or colloquially, nothing to get your nickers in a knot over. :p:

Trainspotter mate, I'll bet you London to a Brick, that our mining industry will not be ruined or shut up doors and go away as some alarmists (no names mentioned:p:) suggest, and will continue on regardles if this new tax is implemented as Rudd wants it, because there will still be profits to be had, maybe just not as big profits.
Click to expand...

Read POST #112 ..... It's a CRACKER !! Gee you really are not as clever as I gave you credit for Whiskers. You may use big words and post a lot of fluff but not much is substance now is it. Insted of directing me onto other market threads .. I choose to go and talk to the people who actually know what is going on in the real world. Keep up the cyber bullsh!it mate ... you are real good at it.

If you read my OTHER post you would have acknowledged this "Still a major player with contracts to fill with China. Has a 30 year minesite still producing 25mt per annum. True. But globally we are fragile in our needs market. We need China to pay buy our Iron Ore to help us pay our debt. Remember we are less than 0.00003% of the population. 6.3billion people in the world and we are 22 million?? Fiesty lot arent we !!" In relation to FMG and other iron ore mining companies. DOH ! What the hell would I know ?

AND furthermore I agree that the mining companies are using the 40% SUPER TAX as a threat to the Guvmnt. It is called an ambit claim. AND yes they are using it as an excuse to wind back exploration etc.

If you could take the time and understand what I am writing you might learn something. If you recall many vox pops claimed the 40% SUPER TAX on the mining companies was introduced by Rudd to slow the boom cycle of the mining industries. We now find ourselves GLOBALLY correcting and guess what ....... (insert your answer here)

Goodbye.
 
However Deputy Prime Minster Julia Gillard rejected suggestions the proposed super mining profits tax was driving the dollar lower.

"We are seeing a flight to the US currency,'' Deputy Prime Minister Julia Gillard told the Nine Network.

"The euro is falling dramatically, we are seeing instability in Greece and what we know from the global financial crisis is when you get instability somewhere it feeds around the world.''

In one of the biggest five-day slides in its history, the dollar's slump is causing headaches for importers and travellers heading overseas.

For consumers, the drop will push up the prices of imported electrical goods and cars.

The Aussie dollar is considered by the global investment community as a risky option in times of economic uncertainty due to the nation's leverage to the commodity prices and and concerns about the mining super profits tax. The US dollar is seen as a safe haven.

http://www.news.com.au/business/eur...ollar-plummeting/story-e6frfm1i-1225869409039
 
The principles of this tax is just wrong, I don't have a lot in mining stocks but I oppose it and will vote against it.

mining is high risk, high capital requirement business and I reckon who ever put their capital at risk should get all the profit and they pay their fair share of tax like any other business.

You want people stop smoking put on the great big tax.
You want people stop investing in mining put on great big tax.

you cant have a great big tax on an industry and said she be right mate
and spread the wealth :) sound like something a socialist and a communist would do..

another policy on the run :D and Rudd is playing John Howard card assuming everyone is stupid that
they take their word for it....we tax mining and we give it to everyone...everyone will be better off...hmmm
 
This article gives more light to the issue, for me at least.
http://www.dailytelegraph.com.au/ne...political-debate/story-e6frezz0-1225869963851
Even if we put aside for one moment the absurdity of a Government by-law being required to take a 40 per cent stake in the financial risks attached to new mining ventures it has no control over, no knowledge about, and no right to be selective about, the Government sharing in the losses of mining companies as public policy won't survive beyond the first time it happens.
Click to expand...
 
ROE said:
The principles of this tax is just wrong, I don't have a lot in mining stocks but I oppose it and will vote against it.

mining is high risk, high capital requirement business and I reckon who ever put their capital at risk should get all the profit and they pay their fair share of tax like any other business.

You want people stop smoking put on the great big tax.
You want people stop investing in mining put on great big tax.

you cant have a great big tax on an industry and said she be right mate
and spread the wealth :) sound like something a socialist and a communist would do..

another policy on the run :D and Rudd is playing John Howard card assuming everyone is stupid that
they take their word for it....we tax mining and we give it to everyone...everyone will be better off...hmmm
Click to expand...

The trouble is a lot of people are that stupid and will feed off whatever the media decides is fit for public consumpsion.
 
It's Snake Pliskin said:
This article gives more light to the issue, for me at least.
http://www.dailytelegraph.com.au/ne...political-debate/story-e6frezz0-1225869963851
Click to expand...

It really is nuts that the Government is willing to take a 40% stake in risky mineral exploration, indexed to the government bond rate.

Why would they do this? The obvious answer is that this is what makes the tax neutral to the mining companies.

Fine in an economic model, not so fine in the real world. My reasons:
1. It is inherently unfair to existing projects. This is because it is being applied retrospectively on long-term mining projects without allowing miners to recoup past capital losses. For a BHP or a RIO with a stable of existing 'super' profitable long life mines, they will not get the 40% rebate (plus retrospective indexation to the bond rate) on fully depreciated assets or past balance sheet write-offs (like Ravensthorpe). This is the bit that sounds like a tax grab to me;
2. it will not be politically viable to write out big cheques to failed mining ventures. It will be a massive storm when, as the author alludes to, the administrators for a Pasminco come knocking on Treasuries door for a big tax refund due to poor zinc price forecasting; and
3. This is why financiers will not accept the 40% 'government bond' in their modelling - they do not trust the political will to open up the coffers for mining losses racked up.

Also imagine the impact on the budget when China has its correction and commodity prices crash or the gold 'bubble' pops? There could be a bill well into the billions which will have to be funded by tax payers!

This will just not sell electorally IMO.

My tip is that the RSPT will be watered down to become like the petroleum profits tax - thus a flat 40% rate will kick in after a project return of the bond rate + 500-600 basis points with a tax write-off allowed for royalties but no government refund for capital losses. This can then easily and fairly be transferred on existing assets, with an allowance made for written-off depreciation. The tax will then not apply to low margin operations like quarrying etc because the return on those projects will be below or on the 11% margin.

My 2c - lets see how it plays out. Without a doubt, though, some variant of the super profits tax will exist going forward.
 
Top