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Tax risks driving miners to Africa, says Base chief by: Andrew Burrell From: The Australian July 02, 2012 12:00AM Increase Text SizeDecrease Text SizePrintEmail
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Tim Carstens says Africa has "a much better risk-return equation" than Australia. Picutre: Colin Murty Source: The Australian
TIM Carstens reckons he is living proof that the mining tax furore of the past two years has helped divert billions of dollars worth of potential investment away from the nation to more welcoming regions such as Africa.
Carstens, chief executive of listed miner Base Resources, is not overly fazed by the introduction of the minerals resource rent tax, which will be levied on all iron ore and coal projects.

That's because while the impact of the tax in its various guises has been furiously debated at home since May 2010, Carstens has been busy building a $US260 million mineral sands project in Kenya, which he believes now has a lower level of political risk than Australia.

In stark contrast to Australia, The Kenyan government has handed Base generous tax concessions and created a stable royalty regime as part of its attempts to attract global capital.

Base's company tax rate in Kenya will be halved from 30 per cent to 15 per cent during the first 10 years of its Kwale project, 50km south of the port city of Mombasa. The mine's royalty rates will also be fixed at low levels by international standards.

...Base acquired the East African project in July 2010, just a few weeks after the debate over the original resources super-profits tax led to Kevin Rudd being rolled as prime minister amid industry predictions that the levy would drive investment offshore.

Carstens says the tax controversy at the time was one of the catalysts that spurred him to scour Africa for lower-cost projects. Since 2010 he has seen many more miners active on the continent, which lacks the infrastructure and governance standards of our nation but can reward those ready to take the risk.

"The interesting thing has been watching the change in sentiment since the announcement of the (RSPT), as far as the number of companies in Australia that are actively working in Africa or looking for opportunities," he says. "It gave people a reason to look somewhere else. And once they look somewhere else, that hurdle has been passed."

Base listed on the ASX in 2008 but struggled to find a company-making project over the next two years. "To be perfectly honest, the reason I didn't continue to look in Australia for the next iteration of projects -- and this was really borne out when we had the (RSPT) the next year -- is that you pay full value for a project in Australia," Carstens says.

"When the government decided they want to throw out the rule book, that was a level of political risk many of us didn't think Australians were capable of.

"When you compare that with Africa, where you've got large areas that have only had rudimentary exploration, if anything at all, and assets that you can pick up reasonably cheaply, you've got governments that are actively trying to make an attractive place for investors to come in, and you've got a much better risk-return equation.

"You still have to deal with things like corruption, the general lack of mining expertise and poor infrastructure, but they are all things that are manageable."

His criticisms were echoed in a recent report by consultancy firm Port Jackson Partners, which found high labour, energy and transport costs had made mining projects here among the most expensive in the world. Iron ore mines were up to 75 per cent more expensive to build than in West Africa.

Wayne Swan has consistently rejected claims by miners that the MRRT debate has made Australia less attractive as an investment destination, pointing to the record pipeline of planned investment as evidence the sector remains healthy. "Despite all of the scare campaigns, all the talking down of the economy, none of it stacks up when you actually look at the facts," the Treasurer told parliament last week.

In a speech in London last month, Glencore chief Ivan Glasenberg, the second-wealthiest Australian behind Gina Rinehart, warned that the MRRT and the carbon tax had undermined the country's traditional advantages over riskier investment destinations.

Glasenberg said Australia was no longer seen as such a stable investment environment.

"At least in the Congo they need you, they want you there and if they start changing the rules on you, you may not continue investing," he said.

"So Australia does have its risk, yes. We saw the carbon tax, we saw the minerals resource tax.

"It is a First World country but is doing things that are making people cautious of investing, so Australia is becoming another country where you have got to make sure that the rules aren't going to change on you."

In Kenya, where the mining industry is just getting started, Perth-based Aviva is exploring for gold and base metals.

Carstens is keen to point out that despite the concessions it has won from the government, Base will still pay more than $300m in taxes and royalties to Kenya over the 13-year life of the Kwale project. The mine is due to be in production by August next year.

The Kwale project was originally owned by a Canadian firm which was unable to develop the mine due to poor relations with the local community. Chinese nickel group Jinchuan came in as a joint venture partner but the mine was sold to Base in 2010 for the knockdown price of $US3m.