Australia's MRRT To Cost Coal Producers A$7.4B Over 5 Years -Woodmac

28th Jul 2010 03:20

SYDNEY (Dow Jones)--The Australian government's deal on a new mining tax will cost coal producers an extra A$7.4 billion over the first five years if coal prices remain at current levels, a new study showed Wednesday. Industry consultant Wood Mackenzie said the tax burden risks adding to long-term trends of strong cost inflation and falling productivity, which are blunting the competitive edge of Australia's coal sector relative to regional rivals. The federal government reworked the Minerals Resource Rent Tax earlier this month, making major concessions to the mining industry, in one of the first moves by Julia Gillard since succeeding Kevin Rudd as Australian prime minister. The changes included a reduction in the headline rate of the tax to 30% from 40%, and the tax would apply only to iron-ore and coal mines instead of all mined commodities. Gero Farruggio, Wood Mackenzie's head of coal supply research, said the MRRT would increase the total government take by 8% over the first five years it was on the statute books if coal prices remain unchanged, compared with the current tax regime. "The top five producers will account for 55% of this additional tax over the period--those with high margins being most affected," Farruggio said. The five producers are BHP Billiton Ltd. (BHP), Rio Tinto Ltd. (RIO.AU), Anglo American PLC (AAL.LN), Xstrata PLC (XTA.LN) and Mitsubishi Corp. (8058.TO). Australia is the world's biggest thermal coal and metallurgical producer, with 2010 export volumes forecast around 300 million metric tons. Indonesia is the second-largest exporter, ahead of Colombia and South Africa. The Gillard government expects the MRRT take for both coal and iron ore to generate A$10.5 billion in the two years after its planned introduction in 2012-2013. However, Wood Mackenzie says the actual money from the MRRT flowing to the Treasury is highly conditional on movements in coal prices, as the tax is profit based. "A return to the low prices of just a few years ago will see no additional government revenue flowing from the MRRT, with some companies benefiting from a reduction in the corporate tax rate from 30% to 29%," Wood Mackenzie said as part of its Coal Supply Service. Wood Mackenzie added there are various issues concerning the MRRT that still require clarification, including the definition of market value of existing assets. -By David Winning, Dow Jones Newswires; +61-2-82724688; [email protected] (END) Dow Jones Newswires July 27, 2010 22:20 ET (02:20 GMT)