Xstrata move adds to pressure over mine tax plan

SYDNEY - Xstrata, the world's largest exporter of thermal coal, has put all its projects in Australia under review, adding pressure on the Government to change its proposed 40 per cent tax on mine profits.

"Until we know where the Government is going with this proposed tax, all of our projects are under review," Brisbane-based spokeswoman Melanie Edgar said yesterday.

The Zug, Switzerland-based company has 33 per cent of its assets in Australia, including coal, copper, zinc and nickel mines.

BHP Billiton, the world's largest mining company, this week joined Rio Tinto in putting its projects in Australia under review, saying the tax may stymie investment and spur producers to move offshore.

Mining companies and groups are holding talks with the Government this week to seek changes.

"It would be imprudent for companies to invest with blinkers on with no regard to, not only this change, but any future change," said Tim Schroeders, who helps to manage about US$1.1 billion ($1.52 billion) at Pengana Capital in Melbourne. "There's fair scope for the Government to fine tune the detail."

The Minerals Council of Australia, whose members produce more than 85 per cent of the nation's output, plans to meet Treasury officials this week.

Andrew Forrest, who controls Fortescue and is Australia's richest man, was set to meet the resource tax consultation panel today in Canberra.

"It has become increasingly clear that the severity of the tax on [the] resources sector is greater than we first thought," said Goldman Sachs JBWere analyst Hamish Tadgell.

"Our feeling is the Government is more likely than not to make concessions on certain issues through the consultation process and that the impact of the tax could be watered down in some areas."

Treasurer Wayne Swan said this week that the Government was committed to consultation with the mining industry. He planned to introduce the tax in 2012 and raise an estimated US$12 billion in the first two years.

Xstrata, the fourth-largest copper producer, on Monday suspended its North Queensland regional exploration programme for the metal. Xstrata plans to spend US$14 billion worldwide to boost its output 50 per cent by 2014.

"The Xstrata Copper announcement was just the first. We're re-evaluating every other project," said Edgar. The company has invested US$45 billion in Australia since 2002, exceeding the US$44 billion in revenue earned in the country, according to Xstrata chief executive Mick Davis.

"We expect the mining industry to fight the resource super profits tax aggressively," Deutsche Bank analyst Paul Young said yesterday. The tax "will reduce investment in new projects and drive investment offshore".

Swan's proposal will make Australia the highest taxed mining industry in the world, the minerals council said after the tax was announced. The resources sector accounts for 9 per cent of the national economy.

"We are happy to consult but tax rates and design have to be on the table," a council spokesman said.

BHP said yesterday its Yeelirrie uranium project in Western Australia was under review.

- BLOOMBERG