Aussie coup casts doubts on mining 'super tax'

24th Jun 2010 09:38

The mining industry is hoping for a more conciliatory approach from Australia's new prime minister after the increasingly unpopular Kevin Rudd was ousted by Labour Party rivals last night.Rudd was responsible for a planned 'super tax' on the mining sector, much-hated by those with big operations down under who felt they had been unfairly singled out.Miners were to have had a 40% levy slapped on profits deemed to be in excess of the government bond rate, currently around 6%. Miners claim their total tax rate, including State royalties, would rise from 40-50% to 50-57%.New leader, Julia Gillard, has ordered all advertisements promoting the tax to stop straight away. Mining executives have also pulled their anti-tax campaigns.BHP chairman Jac Nasser wrote to shareholders again last week restating his opposition to the tax. He said meetings with the government since the plan first surfaced on 2 May have been about how the tax would be brought in, not about its "major design features (and flaws)"."There are now several expert reports that demonstrate the tax will cut investment in the Australian minerals industry and negatively affect Australia's economic future," said Nasser.Wales-born Gillard has promised the mining industry a fair hearing, but stood by its commitment to its budget targets."I have said to the mining companies of this nation publicly that the government is opening its door and we are asking them to open their minds," she told the Australian parliament.UK broker Ambrian hopes Gillard will bring some added pragmatism to the discussion table in the months leading up to the Australian General Election in the autumn."Our view is that although on 2 April the announcement of the RSPT (Resources Super Profits Tax) clearly hit the mining shares with exposure to Australian profits, because the market was looking for a reason to take profits, it is the general global economic malaise that has driven the miners back to current low forward PE's," Ambrian told clients today."The change in Australian leadership might be a small positive but would not be the reason we recommend buying the mining shares today, we recommend buying the miners because we believe the sector offers the best earnings (and dividend) growth on the LSE."Rio Tinto is still its top pick as the most undervalued in the peer group.