We know Cathy and her husband, Ian Finch, very well (Stars...

We know Cathy and her husband, Ian Finch, very well (Stars Aligned syndicate). Cathy's thoughts reflect one of many stories we're hearing on daily basis now.

Subject: Small mining companies and the super profits tax

My husband has been involved in the mining industry for nearly 40 years and so has experienced the very best and very worst that the cyclical nature of the industry brings.

He runs a small public exploration company in WA and has done so for many years. Prior to the GFC, the company was in the process of raisiing funds to carry out feasibility studies and, if profitable, to develop the infrastructure in order to mine an iron ore resource. This would have gone on to have employed many workers, contractors, developed town infrastructure etc. The GFC hit before funds were secured. In order not to lay off any of the 20 + current staff, the company proceeded very cautiously, over the following months, carrying out only very low expenditure work. It was a very worrying time.

During this time, various Chinese government and Indian companies, who were eager to buy the end product, and middle men (including a previous Australian Prime Minister) keen to make some money, began knocking on his door, offering to relieve him of the pain and stress by buying up huge chunks of the company for very little and with very poor return to the investors, who had been supporting the company for many years.

Because of the huge potential of the various projects and in the best interest of the company and shareholders, the directors rejected all the offers. As the GFC problems seemed to settle the offers from the Chinese became more reasonable, to the point at which a very good deal for the company was agreed upon and a MOU signed, which had the Chinese investing a large sum into the company so the feasibliilty study could be carried out, with further monies promised by the Chinese, towards development of a mine.

Kevin Rudd announced the 40% supertax the day before the first monies were to be drawn down. The following day the company received a letter from the Chinese company, reneging on the deal and wishing to re-negotiate something much more favourable to them, now that their investment returns were to be much less.

I am describing this to you because this company is not alone. I am aware of many small resource companies who are in similar positions, finding it very difficult to raise funds, or, where recent deals have fallen over. Because of the high risk nature of the industry it can be difficult to raise funds even in good times. Why haven't these small companies gone public? It is a difficult thing to do if they do not want to lose investor confidence and have their shares slump further .

There was a criticism of the big miners yesterday, from Ken Henry, saying that part of the reason for the mining stocks dropping in value is because they are frightening their shareholders by going public with their concerns about the Super profits tax. This may well be true, however, how do you get your message across if the government won't listen? Say nothing ? It is even more difficult for the smaller companies to go public, but they are affected by this as well.

I believe the mining industry should pay its way. I believe the resources belong to the Australian people. However, you have to get them out of the ground. And you have to do this responsibly, safely and profitably. AND before any of that you have to FIND them. They are not just sitting there in a big pile. This is where the problem lies - It is very risky, very dangerous and very expensive to find, develop and mine a resource . If tax payers wish the government to fund mining, to take the risk of exploration and mining, then it will never happen. The resources will sit in the ground and there will be nothing to go back to the community. It is just too expensive and too risky for governments to do. So the mining companies and their shareholders put up the money and take all the risk. Shareholders may take years to receive a return on their investments and more often than not they receive none. If there is not the opportunity of a very good return, why would they bother - they will invest elsewhere.

Mining is a huge benefit to the community. After companies have paid their taxes, the profits go into further development and exploration and to the shareholders, as a return on their investment. They have paid, in effect and at huge risk, for the work carried out. Mining also employs many people who then go on to spend their money to support many other industries, including real estate, car, restaurant, clothing, white goods, tourism and travel which all help to stimulate and support the economy.

What really concerns me is that the decisions about the super profits tax are being made by people who seem to have no understanding of how exploration and mining occurs. If I am incorrect in that assumption, the only reason I can see for this tax is the desperate need for money now and with no concerns for the future of this country and those living here. I believe they have the balance wrong. Why would you penalise an industry which is taking all the risk and the full of cost of development and giving back so much?

The government is now spending $38 million of our money to justify its actions.


Catherine