MARKET TALK: S&P/ASX 200 Bounces On Report Of Tax Progress

1st Jul 2010 06:04

0503 GMT [Dow Jones] S&P/ASX 200 down 1.4% at 4244.0, recovers from 4217.2 as The Age reports Australia's government, miners have made significant progress in talks about mining tax compromise and are on the brink of agreement. Report says issues agreed include creation of new trigger point for the tax--original proposal was long-term bond yield, new rate expected to be set at long-term bond yield plus 7%. Currently equal to 12%, which is near average cost of capital in the mining industry. Report says government believed to have resolved miners' concerns about retrospectivity by agreeing that miners can inject existing assets into regime, including Pilbara mines and east coast coal mines. Report also says it was unclear what deal had been struck on the headline 40% rate but that government is believed to have also given ground on this point. Adds new agreement likely make lower value resources including sand, gravel and limestone, as well as nickel mining and processing, exempt. "Obviously the fall in commodity prices and future estimates of world growth are paramount in mining sector valuations," says Patersons Senior Private Client Adviser Peter Morgan. "But this deal will greatly lift sentiment and help Australia in the world's eyes as a key resource play. The retrospectivity issue being resolved removes a major unfairness of any new tax and will benefit...companies." But a senior institutional trader at a major broker says this is probably a good selling opportunity in the miners because they have recently outperformed on expectations of such a deal. BHP (BHP.AU) down 1.1% at A$37.24 off A$36.67 low. Rio (RIO.AU) down 2.0% at A$65.31 off A$64.15 low. ([email protected]) Contact us in Singapore. 65 64154 140; [email protected] (END) Dow Jones Newswires July 01, 2010 01:04 ET (05:04 GMT)