dumping, page-12

As an investor, I want to know what impact the resource rent tax is going to have on Kanmantoo. Problem is the detail will not be known for quite some time and there is a a 50% chance that Rudd will lose the next election. Lots of uncertainty.

Personally I think the RRT is very bad news for HGO in the short term.

The RRT reduces the prospect of the ESG top up happening. It appears the RRT will have a significant impact on CSG to LNG projects. Deutsche Bank are saying it will reduce the NPV of the Santos Glandstone LNG project by 9% though possibly by as much as 40% in a high LNG price scenario. On a $9bn project this is quite an impact.

What impact does the RRT have on Kanmantoo? Currently Kanmantoo pays 3.5% in mining royalties and now it will have to pay a tax of 40% of any profits above a normal rate of return (though gets to deduct the mining royalty from this). How will this impact upon a small and short life mine that needs to make high margins to pay back the capital in a short period of time?

There is some talk that small mines wont be affected? Does this include Kanmantoo?

The RRT also provides an incentive for State Governments to increase their mining royalties so the cash goes into their coffers and not the Feds. The SA State Treasurer Foley has come out today and said he is going to look at increasing mining royalties in SA from 3.5% citing the 7% being levied in WA.

The timing is not great for HGO. They are at the stage where they are committed to Kanmantoo. They have to push forward with the project knowing that any RRT impost is going to come straight off the bottom line along with any increase in mining royalties.

Unfortunately the devil is in the detail and we dont have any details as of yet.

I am sitting on the sidelines until I am satisfied I understand the impact of the RRT on Kanmantoo. I am also completely out of CSG for the same reasons. There is buckets of CSG in QLD and if these CSG-LNG projects fall over, are delayed or reduce in quantum there is going to be a big glut of CSG looking for a home.

Am I negative - yes - I am a cautious investor.