twiggy on inside business, page-36

Hi Folks,

Never mind the rhetoric, this isn't a tax that just takes a mere third of your project value.

Try modelling it for a simple robust looking project as I just did assuming an 11% cost of capital. I was shocked to find in my first example the government got 85% of the project NPV. My simplistic example was $1mm capex spread over 2 years, followed by $3mm EBITDA spread evenly over 10 years. D&A for RSPT assumed to be proportion or remaining project life (unlike with PRRT).

My conclusion is that the government gets 57% of NPV for a zero capex project, quickly moving up to a dead project (at the modest 11% hurdle) as capex moves into the more normal realm. What sane person would invest on that basis?

I suggest those defending this extraordinarily stupid tax get ready for the immediate end of almost all new mining projects in Australia. Sell real estate anywhere geology, mining and engineering types habitate, because they are to bear it first. Miners imho just too gobsmacked to ring Woreley etc yet and tell them to fire their project teams.

Don't believe me, stop reading the papers, just do a couple of simple project NPVs.

In fact I take great solace in the numbers. In finding that pretty much nothing will fly I recognise that no government will be reelected with this tax as proposed, as the carnage will begin very quickly.

Whatever else the 6% needs to be raised. Even then capital should be fully recovered before paying this, merely depreciating it is not enough.

Existing projects are lucky - they just get robbed, new ones get a quick death.

EL