UPDATE: Fortescue Metals: Funding Doors Re-Opening After New Mining Tax Plan

2nd Jul 2010 09:02

By Stephen Bell Special to DOW JONES NEWSWIRES PERTH (Dow Jones)--Fortescue Metals Group Ltd. (FMG.AU) said Friday that banks have already expressed interest in funding its iron ore mine expansions, following the Australian government's significant overhaul of the proposed mining profits tax. But Chief Executive Andrew Forrest stopped short of declaring the taxation changes sufficient for Fortescue to re-start work on A$15 billion worth of expansion projects shelved by the company last month in response to the controversial Resource Super Profits Tax. Following the tax modifications unveiled early Friday, Fortescue has received contact from bankers saying, "Fortescue, we are prepared to talk to you again", Forrest told reporters. However, "there are no promises in any of that," he added. "We had capital being lined up before, we don't have that now, but at least the doors are opening back up," he said. The Australian government earlier announced sweeping changes to its planned levy, making major concessions to the mining industry including a reduction in the headline tax rate to 30% from 40%. Fortescue is "relieved" that the government dropped its Resources Super Profits Tax in favor of a watered down version and the draft Minerals Resource Rent Tax provides a "reasonable framework for on-going industry consultation," Forrest said. But it was "disappointing" that the outcome was the result of meetings between the government and big multinational mining companies BHP Billiton Ltd. (BHP.AU), Rio Tinto Ltd. (RIO.AU) and Xstrata Plc (XTA.LN), with no input from "local" miners, Forrest said. And it was "ludicrous" that infrastructure has been excluded from the taxation regime's proposed capital base, he said. Fortescue, Australia's third-biggest iron ore exporter, has recently constructed major new ports and railways for its Pilbara iron ore venture in Western Australia state. The proposed MRRT also disadvantages smaller miners because the impost kicks in at profit levels of roughly 12%, being the Australian bond rate plus 7%, Forrest said. This favors multi nationals, which can source borrowings globally, often reflecting Australia's bond rate, he added. In contrast, developing miners can't source capital as cheaply. The MRRT should have a "floating rate above a company's true cost of borrowings--then, of course, you have a fair playing field", he said. Speaking at the same press conference, Association of Mining and Exploration Companies Chief Executive Simon Bennison said that his lobby group feels "hoodwinked" by the Australian government's lack of consultation. The industry now has a "lack of trust" of the government, which is expected to make negotiations over the coming months extremely difficult, he said. -By Stephen Bell, contributing to Dow Jones Newswires; 61-8-9244-4243; [email protected] (END) Dow Jones Newswires July 02, 2010 04:02 ET (08:02 GMT)