BHP, Rio May Lead Mining Stocks Lower on Australias New Tax Share Business
By Rebecca Keenan
May 2 (Bloomberg) -- BHP Billiton Ltd. and Rio Tinto Group, the worlds largest and third-biggest mining companies, may decline in Sydney trading tomorrow after the Australian government said it will increase taxes on resource companies to help pay for infrastructure, retirement and company levy reforms.
The knee-jerk reaction is theyll get hit tomorrow, Citigroup Inc. Mining Analyst Craig Sainsbury said from Sydney today. Mining companies will be taxed about 58 cents for every dollar of earnings, compared with 35 cents before the new regime, he said. There will be offsets available to mining companies, he added.
Australia, the biggest exporter of coal and iron ore, will impose a 40 percent tax on the profits of mining companies making it the most highly-taxed nation. The move could cut earnings for BHP by 19 percent and for Rio by 30 percent, Merrill Lynch & Co. said in a report before the changes were announced.
If implemented, these proposals seriously threaten Australias competitiveness, jeopardize future investments and will adversely impact the future wealth and standard of living of all Australians, BHPs Chief Executive Officer Marius Kloppers said in an e-mailed statement today. The companys effective tax rate will increase to 57 percent from 2013 from 43 percent now on its Australian earnings, the company said.
Shares Decline
London-based Rio declined 4.4 percent in London on April 30 to its lowest since Feb. 26 on concern a possible increase in mining taxes would hurt profits. BHP slid 3.1 percent and London-based Xstrata Plc, with coal, copper, zinc and nickel mines in the country, fell 4.1 percent.
On this one, they really do run the risk of taking away from Australia the strongest industry we have and the one that saved us from the global financial crisis, Keith De Lacy, chairman of Brisbane-based Macarthur Coal Ltd., the worlds largest producer of pulverized coal, said by phone today. Always 50 percent of our net profits went into development and exploration and so much of that is going now so obviously well grow slower.
The replacement of state mining royalties and corporate tax with the 40 percent tax on profits could cut earnings at BHP and Rio by about 5 percent in 2011, analysts at Sanford C. Bernstein Ltd. wrote in a report last week.
Fortescue Metals Group Ltd., Australias third-largest iron-ore producer, said before the announcement that a higher mining tax may limit expansion in the nation.
If we remove the industrys ability to retain its earnings, we remove its ability to fund itself and fund its expansions, Fortescue Chief Executive Officer Andrew Forrest told reporters on a conference call. If the company cannot retain its earnings in order to expand, then obviously the only alternative is ownership of that project goes offshore.
Fortescue wasnt available for comment after the new tax was announced.
The resources tax will include a refundable credit for royalties paid to state and territory governments, avoiding double taxation.
To contact the reporter on this story: Rebecca Keenan in Melbourne at [email protected]
