Mining tax is unlikely to affect ratings, says agency

MELBOURNE - The proposed super profits tax on mining companies will not affect the long-term credit ratings of resources companies such as BHP Billiton and Rio Tinto, Fitch Ratings says.

No credit downgrades were anticipated as a result of the super profits tax, said senior director Julian Crush.

"There could be some rethinking on investment for new natural resources projects resulting in a negative cash tax impact on miners, but this news does not mark the beginning of the end for the Australian mining industry," he said.

"Demand for their product is simply too strong."

The global credit ratings agency reviewed its forecasts for the mining giants after the release of the federal Government's response to the Henry tax review and found Rio Tinto and BHP Billiton's credit metrics remain aligned to their existing credit ratings.

The federal Government on Sunday announced a proposal to tax resources companies a 40 per cent royalty on their earnings before interest and tax (ebit) after adjustments for losses carried forward. The proposed tax would come into effect from July 2012.

Fitch yesterday said that should the tax become a reality, the combined tax burden on BHP and Rio could exceed A$3 billion ($3.7 billion), but this would not jeopardise the ability of either company to service and repay debt.

In aggregate, Rio and BHP generated a total of about A$125 billion in operating earnings before interest, tax, depreciation, amortisation and rent in the past three years, and the outlook for commodity demand and prices remained strong, Fitch said.

The definition of "super profits" is unclear, but Fitch's understanding is that these profits will be over and above those considered by the Government to be a "reasonable" rate of return on investment in the Australian mining industry.

- AAP