csg future with super tax - food for thought

This is an article from the Business Spectator (Robert Gobbliebsen - note the information on Gladstone CSG

RSPT shockwaves spread

There is a real danger that at the next election the ALP will lose all its Western Australian seats and have no representation in the federal parliament, according to Roy Morgan Polling. The people in WA understand the impact of this tax on their standard of living.

The material now starting to emerge about the RSPT mining tax is that few Australians will escape its impact because all our lives have become interwoven with the mining industry even though we often dont realise it. And while there have been enormous protests about the RSPT mining tax from the Minerals Council, few companies have specified how it will affect their operations, hoping the tax will change. When they tell the horrific truth, many boards could be the subject of class actions from angry shareholders who will complain that directors kept the facts secret fearing the impact on the share price.

One of the best analyses so far on the effect of the RSPT on Australia has been undertaken by Ivor Ries writing in our sister publication, the Eureka Report. Ries is head of research at EL&C Baillieu Stockbroking and I commend the article to all those who are likely to be affected by the tax.

Ries calculates that the free cash flow of older mines that have virtually fully depreciated their equipment will be taxed at a whopping 60 to 70 per cent. That applies to Rio Tinto and BHP iron ore mines. Its a fact that clearly needs to be announced by all listed companies in this situation because, although the exact details are uncertain, the tax as currently planned could have a material effect on share prices.

The tax also applies to the black and brown coal mines that fuel domestic power generation around the land. In many cases and particularly in Victoria these mines are highly leveraged and the tax cuts in before interest charges. The higher costs will have to be passed on and Ries estimates that it will add $3-$4 per megawatt hour to the average industrial or commercial power user's power bill, lifting Australias manufacturing cost base by between $800 million and $1 billion.

Ordinary Australians will also get hit.

Then count the cost of the closure of major new investments. Ries' calculations apply to the Queensland LNG plants where each major project cancelled costs 2000 full-time jobs and about $2 billion in state and federal taxes lost. Queensland is going to be brutalised by the tax because most of the Gladstone LNG projects will be lost, which involves investment of close to $90 billion of which the majority was funded by Canberras 'foreign devils' (overseas-owned mineral companies and bankers). The Bowen Basin coal expansion is also in deep trouble.

In South Australia, Olympic Dam expansion is history while OneSteel chairman Peter Smedley announced that the tax in its current form would over time put the Whyalla steelworks out of business.

We could go on. Imagine if the secret government briefing of an advertising agency had explained that the tax would decimate the $90 billion LNG expansion in Queensland, slash WA iron ore expansion, kill off Olympic dam expansion plus Whyalla and raise power costs around the country. Thats the real truth.

Unless this tax is dramatically changed (and I think it will be), Australia will become like New Zealand a low growth country. There is a very good case that over the medium term the mining tax as it is presently constituted will reduce, not increase, taxation revenue.

The government is right we do have a national emergency and so does the Prime Minister.