Chavez - in Australia?

[trev]

The Australian Prime Minister Kevin Rudd alias Chavez seems to be copying the politics of envy, hit the rich etc of Chavez and has announced a 40% 'super tax' on mining companies, raising their tax rate in total to 70%. The rational is that their very high profits in this commodities boom should be spread further to benefit all Australia. The standard company tax rate of 30% plus state based royalty payments apparently is not enough benefit from these companies. In return the gov't will provide some exploration incentives, but nowhere near enough to wipe out the impact of this extreme tax.
Already in several days tens of billions have been wiped off the share value of mining companies and some have announced suspension of exploration activites and development of projects have been put on hold. Apparently Canada is contacting our mining companies also suggesting they should go there. Others have announced they will increase exploration activites in West Africa etc.
The government seems to believe that the mining companies will not change their plans and are just playing politics, plus the government would like more money to reduce the deficit and pay for more public spending. The problem is that the biggest rise in employment in the mining sector in Australia has been in development of new projects, the development of projects having greater labour requirements than operating existing mines.
So a change in exploration and development activities by these companies would have a rapid impact on the overall employment market in Australia, as many of these companies pay 3 - 4 times the going rate for similar skills in manufacturing sector located in the major cities. The mines are generally located in far away, remote and sparsely populated regions of Australia and higher wages are needed to entice people there.
Considering these mining companies with their huge profits have up to now been plowing then back in a big way expanding existing operations and developing new operations, there has been a big benefit to Australia already from their profits. It is extremely unlikey that a similar benefit can be achieved by the government stealing those profits and spending the money itself.

[ramseya]

This reminds me of that whole oil freakout in the summer of 2008 right before our elections in America (Republicans: Drill baby drill!; Democrats: ...[evil] windfall profits for oil companies). Nothing became of it as oil prices plunged before Obama came to office.

It all stems from this concept of 'windfall profits', the idea that a company can earn 'undeserved' profits due to the vagaries of the market. Yes, while the relative price inelasticity of demand for oil/minerals, OPEC restrictions in the case of oil, and speculation may all contribute to 'unnatural' prices (I've seen studies/statistics that show that the latter two actually have little effect, however), it is absurd to treat the oil or mining industry differently from every other industry by having the government arbitrarily decide what is a limit on 'good' profits and everything beyond that deserves to be taxed to heck. It doesn't make sense and sets a bad precedence.

Also, I don't know what accounting regulations are like in Australia and I can only speak from a limited accounting experience but I'm sure mining companies have accountants who can come up with creative ways to reduce income tax liability.

[ricketyclik]

It's not about windfall profits - it's about the fact that once these resources, which belong to everyone, have been mined, that's it, they're gone forever.

To me it makes perfect sense that the Australian public should get a share of the profits, and if the mining companies want to go elsewhere then let them. The minerals/ores/fossil fuels aren't going anywhere, so when they're ready to pay our price they know how to contact us.

[trev]

But Anna Bligh is the first Labor Leader to publicly question the Prime Minister's super tax.

Fresh from a trip overseas, the Premier revealed her deep concern with the mining tax, and says she will need changes to support it.

But it is no wonder she is worried: this week gas producer Santos announced it would be deferring a decision on whether to build a $15 billion LNG export terminal in Gladstone in Queensland.

Members from Kevin Rudds own party are now questioning the super tax on resource companies, after all a 15 billion dollar project is a lot to lose for a tax which is claimed to generate less money than that. It will only take a few projects like that to be cancelled and the loss of normal company tax on the profits will be greater than the gain from super tax within a few years.

[Ecofarm]

CARACAS, Venezuela (AP) - Venezuela's annual inflation rate has surpassed 30 percent after consumer prices surged in April.

http://apnews.myway.com/article/20100508/D9FIDGM01.html

[ricketyclik]

[Mining] companies always ***** and moan about new costs, threaten that the sky will fall and blame any delays or cancellations that were going to happen anyway on the new measures. News Ltd publications will always report non-Coalition policies in a bad light.

Like I said before - that stuff under the ground ain't going nowhere. Over time its relative value will only increase. Let them cry wolf.

[ricketyclik]

From the Australian (who will normally stop at nothing to pooh-pooh Labour):

Mining stocks rally as sharemarket closes in the red
UPDATE: Michael Bennet From: The Australian May 05, 2010 5:42PM

Pullback: Australian stocks recovered some lost ground at the close of trade today, after having dived nearly 2 per cent by early afternoon. Source: The Australian
MINING stocks that were ravaged in the last two sessions on the back of the Rudd government's proposed "super profit tax" staged a comeback rally today, but failed to lift the Australian sharemarket out of the red after a horror lead from Wall Street.

After losing $16 billion since the proposed mining tax emerged from the Henry Tax Review on Sunday, the materials sector was the strongest performer today as traders moved to cover short positions on Fortescue Metals and bargain hunters pounced on its larger, oversold rivals.

Fortescue rebounded to finish up 25 cents, or 6.16 per cent, at $4.31.

BHP Billiton jumped 15c (0.39 per cent) to $38.74 and Rio Tinto added $1.22 (1.82 per cent) at $68.28.

The broader market was weighed down by weakness from the financials, industrials and energy sectors, but still managed to reverse a 2 per cent slump at the opening on the mining rebound.

“We think, tactically, it’s a buying opportunity for resources,” said Credit Suisse equities strategist Atul Lele.

“World growth and commodities drive commodity prices and the resources sector, not the Australia government, and world growth and liquidity conditions are still supportive.

“Right now, it’s (the market) actually approaching tactically cheap territory because of the pullback, and yields globally have fallen as well, which makes equity valuations more attractive.”

The benchmark S&P/ASX 200 index closed down 63.1 points (1.33 per cent) at 4674 points, and the All Ordinaries index fell 61.3 points (1.29 per cent) to 4692 points.

The big banks all fell after Westpac unveiled a lower than expected rise in first-half profit and said there was a “challenging” outlook for core earnings growth.

Westpac fell $1.14 (4.17 per cent) to $26.19, Commonwealth Bank was off $1.41 at $56.90, National Australia Bank was 93c lower at $26.78 and ANZ lost 55c to $24.11.

The Australian sell-off was sparked after global markets tumbled overnight on concerns about the possible spreading of the Greece debt crisis and slower Chinese growth.

On Wall Street overnight, the Dow index fell 2.02 per cent to 10,926.77 - its biggest one-day drop since February 4 - as Germany’s DAX slumped 2.6 per cent and Britain’s FTSE dived 2.6 per cent, sending the euro to one-year lows against the US dollar.

But analysts largely dismissed Europe’s problems within the Australian market context.

“Fear is running rampant at the moment,” said IG Markets strategist Ben Potter.

“This is largely due to the concerns in Europe, which are ridiculous in our view. The market is fretting about something that might happen, not something that’s actually happening.”

The S&P/ASX 200 is now down about 6.5 per cent from its 2010-high on April 15, when it cracked the 5000-point barrier to hit 5001.9, with analysts saying the next few sessions would be crucial in terms of price direction.

But Merrill Lynch strategist Tim Rocks said in a note to clients today that the government’s proposed tax on miners had sparked “a major sector rotation that has much further to come”.

“Resources remain vulnerable because investors have been so aggressively overweight cyclical assets,” he said.

“We continue to recommend steering well clear. If valuations were cheap, this would provide an offset, but high valuations, investor overweights and accumulating risks make a truly awful combination.”

But CMC Markets analyst David Taylor said the market had been a little oversold in reaction to the proposed tax, which actually sheltered possible bigger losses today.

“Technically speaking, I think we’re a little over-done in the short term,” he said.

“I think the sheer fact that a lot of value has been wiped off the miners in the last couple of days has meant that, today, we’re not down as much as we otherwise would be.”

Metals tanked overnight as HSBC's China Manufacturing PMI for April declined to 55.4 from 57, sparking concerns of slowing growth in China despite the index staying above the 50-point level showing growth.

Copper fell 3.4 per cent, crude oil futures slipped $US4.08 to $US82.11 and June gold futures also ended lower at $US1169.80.

The pullback in commodities also saw the Australian dollar open almost US2c lower as investors sought the safety of the US dollar and Japanese yen before rising 0.21 per cent to US91.06c late in the day.

[trev]

Yes, mining shares were oversold. That says nothing about the rights and wrongs of new super tax. The companies can still make the similar profits, but they will do it by expanding overseas operations, not Australian operations. Meanwhile the states will lose their royalty taxes, Kevin Rudd company tax, Australian workers their high paid wages, and remote areas will lose population, potentially a long term security risk for Australia.

[notyoueither]

Is this tax on mining operations in Australia, or on profits of Australian based companies which may operate anywhere?

[ricketyclik]

Is this tax on mining operations in Australia, or on profits of Australian based companies which may operate anywhere?

The former.

[notyoueither]

I'd say it's already having an effect then.

http://www.theglobeandmail.com/globe-investor/rio-tinto-expanding-iron-ore-production-in-canada/article1559034/

Rio Tinto expanding iron ore production in Canada

Brenda Bouw Mining Reporter
Vancouver — Globe and Mail Update
Published on Thursday, May. 06, 2010 1:21PM EDT
Last updated on Thursday, May. 06, 2010 4:08PM EDT

Rio Tinto PLC (RTP-N45.930.571.26%) is dusting off plans to increase iron ore production at its Canadian operations, citing growing demand for the steel-making product and an attractive investment climate in the country.

London-based Rio, the world’s third-largest miner, said the Iron Ore Co. of Canada board has approved a new $401-million (U.S.) investment to increase its annual concentrate capacity by 4 million tones to 22 million tones by 2012. Rio’s share of the investment is $235-million.

The money will go towards the first of a three-stage expansion program at its operations in Labrador, with a goal to increase annual capacity to 26 million tones.

Rio said the revised total project cost for the first stage expansion is $497-million, a $22-million increase from the original estimate. Rio’s share is $292-million.

The expansion was approved two years ago, but then suspended in late 2008 as a result of the global credit crisis.

“Some uncertainty and potential volatility remain about global economic recovery, but global iron ore and steel markets have rebounded strongly and demand growth looks set to continue,” Sam Walsh, chief executive officer of Rio’s iron ore group, said in a release Thursday.

Rio also cited the rising demand of iron ore, which has pushed up prices in recent months, as well as the “attractiveness of investing in Canada.”

The move was announced after Rio said it would evaluate the impact a proposed new 40 per cent tax on mining profits in Australia will have on operations in that country.

In late 2008, Rio delayed or suspended billions of dollars in Canadian spending commitments as it wrestled with a massive debt it took on to buy Alcan Inc. in 2007.

That included $800-million of expansion plans at IOC, the largest manufacturer of iron ore pellets in Canada.

IOC operates a mine, concentrator and a pellet plant in Newfoundland and Labrador, and port facilities in Quebec.

Rio owns about 59 per cent of IOC, Mitsubishi Corp. owns about 26 per cent and Labrador Iron Ore Royalty Income Fund (LIF.UN-T47.53-0.47-0.98%) owns 15 per cent.

[trev]

All of the big mining companies have projects in multiple countries, so it is easy for them to hurry one up and slow others down depending on political circumstances in each country. Unfortunately Kevin Rudd whose life before politics was within government bureaucracy is unable to understand how the real life economy works.
This has already been demonstrated during an home insulation subsidy scheme which left around half of the houses insulated with substandard and dangerous insulation leading to 4 deaths and hundreds of house fires. At least a billion dollars now has to be spent to fix up the mess. Also massive overpricing in a schools building plan has allowed builders to win tenders for the school buildings at up to triple the true value of the building costing billions extra overall. It seems everytime he has attempted to do something in the real world he has stuffed it up. And the country as a whole is paying the price for it.
Kevin Rudd has proved to be the most incompetent prime minister Australia has ever had. And we got rid of our most competent ever to put him there.

[Dinner]

A total tax rate of 70% sounds extremely high but I don't know what type of tax credits are available in Australia for businesses. In the US most of the large companies get away without paying any net taxes because of the huge number of tax credits, subsidies, loop holes, and what not.

[ricketyclik]

The expansion was approved two years ago, but then suspended in late 2008 as a result of the global credit crisis.

So it was happening anyway. Later in the article Rio has a dig at the tax, which of course they will do after any announcement.

Plus, we've more than enough mining going on in Oz, the Canadians can have some - more for us later when iron ore is more scarce and thus more expensive.

[ricketyclik]

All of the big mining companies have projects in multiple countries, so it is easy for them to hurry one up and slow others down depending on political circumstances in each country. Unfortunately Kevin Rudd whose life before politics was within government bureaucracy is unable to understand how the real life economy works.
This has already been demonstrated during an home insulation subsidy scheme which left around half of the houses insulated with substandard and dangerous insulation leading to 4 deaths and hundreds of house fires. At least a billion dollars now has to be spent to fix up the mess. Also massive overpricing in a schools building plan has allowed builders to win tenders for the school buildings at up to triple the true value of the building costing billions extra overall. It seems everytime he has attempted to do something in the real world he has stuffed it up. And the country as a whole is paying the price for it.
Kevin Rudd has proved to be the most incompetent prime minister Australia has ever had. And we got rid of our most competent ever to put him there.

And there you have the real reason for the anti-tax stance. Partisanship.