Thursday, 20 May 2010

The real fear of mining companies emerges

It has taken a few weeks but the stock market analysts are beginning to wake up to the real fear that the BHP Billitons and Rio Tintos of the world are really worried about when it comes to the proposed Australian super profits tax. It is not just the extra dollars that will be paid in Australia that concerns them. The miners realise that the increased share of mineral wealth going to the host country here at the expense of those that dig it up will quickly spread to other countries around the world. If and when that happens the stock market valuations based as they are on growing future earnings will come crashing down.
The likelihood of this happening was something I alluded to when the Australian tax was first announced earlier this month. I wrote then:
"Some things about politicians are universal and seizing an opportunity for extra tax revenue is one of them. Hence the idle nature of the threats by the mining industry in Australia to take future developments somewhere else if the resources tax is finally imposed. It will not be long before the international mining taxation playing field is level again."
This morning the Bloomberg news service has taken up this theme with a story saying that Australia’s planned 40 percent tax on mining profits has set a benchmark for other countries weighing higher levies, reducing earnings forecasts for BHP Billiton Ltd and Rio Tinto Group and the attraction of mining stocks. It quotes, among others, Tom Price, commodities analyst with UBS AG in Sydney, as saying “it could create what the miners are now describing at a global level as a type of tax contagion. They might levy a new tax at the miners in Brazil. Canada is another mineral province and South Africa.”
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