Gillard thrashes out new mining tax deal

Julia Gillard has passed her first major test as prime minister, thrashing out a
compromised mining tax deal with global majors BHP Billiton Ltd, Rio Tinto Ltd and
Xstrata.
The federal government has replaced its contentious 40 per cent resource super
profits tax (RSPT) with a minerals resource rent tax (MRRT) at a rate of 30 per
cent.
Smaller miners with profits below $50 million a year won't be liable for the new
tax, which will kick-in when profits exceed about 12 per cent, up from about six per
cent under the RSPT.
Commodities other than iron ore and coal will be exempt from the revised tax.
The biggest critics of the tax, the Minerals Council of Australia, said exclusion of
all mineral commodities except coal and iron ore recognised a principle it
supported, namely differentiating rates across commodities to ensure international
competitiveness.
A big winner was the growing coal seam gas-to-liquefied natural gas sector, which
along with all Australian oil and gas projects, including the Woodside Petroleum
Ltd-led North West Shelf, will be subject to the existing petroleum resources rent
tax.
The tax will not be applied retrospectively, so existing projects where investment
decisions have already been made will not be adversely affected.
The government will also tax existing projects at market value.
Also, investments made from July 1, 2012 can be immediately written-off, rather than
depreciating the expenditure over a number of years.
"This means that many mining projects will not be subject to the tax until they earn
enough profit to recoup their up-front capital expenditure," Russell Garvey,
director of corporate and international tax for accounting giant BDO International,
said.
Just 320 miners will be affected by the MRRT, down from 2,500 under the RSPT.
Many multi-billion dollar projects came out of mothballs shortly after the
breakthrough was revealed.
OneSteel Ltd was concerned the RSPT would force it to close its Whyalla steelworks
in South Australia, but Resources Minister Martin Ferguson said the new tax should
not threaten jobs in the state.
Mr Ferguson also said the expansion of BHP Billiton Ltd's Olympic Dam copper and
uranium mine would go ahead.
The mining giant had previously warned that the RSPT had prompted it to put this and
other projects, including an expansion of its lucrative iron ore operations in
Western Australia's Pilbara region, under review.
BHB Billiton and Rio Tinto said the MRRT was a big improvement on the RSPT.
Swiss mining giant Xstrata said it was resuming activities at its Ernest Henry
underground coal mine and $30 million worth of coal exploration activities in
Queensland.
Fortescue Metals Group Ltd chief executive Andrew Forrest would not be drawn on
whether Fortescue would resume two shelved projects in WA worth $17 billion.
Coal miner Macarthur Coal Ltd welcomed the lower tax rate and said it would "be
looking to understand the concept of the market value option that has been included
in the MRRT proposal" during a consultation period with the federal government.
Macarthur chief executive Nicole Hollows said all parties to the negotiations needed
to focus on keeping Australia's resources industry internationally competitive.
BDO International said the compromise would help repair Australia's reputation as an
investment destination.
"The previous proposal was far too damaging to the entire sector, and this deal
comes closer to satisfying industry principles and the government's desire for
improvements to resources tax arrangements," BDO said.
But this will come at a price.
The new mining tax will shave revenue by $1.5 billion over the government's forward
estimates, prompting it to cut the company tax rate by one per cent to 29 per cent
from 2013/14, not to 28 per cent under the previous proposal.
Also, the resource exploration rebate, which miners complained carried no weight
with financiers, has been scrapped.



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