World Business

Australia mining tax move cheers investors

By Angus Whitley (China Daily)
Updated: 2010-06-26 11:28

New Australian premier moderates stance on controversial industry levy

SYDNEY - Mining takeovers in Australia may reverse a slump after new Prime Minister Julia Gillard signaled a desire to resolve a dispute over a minerals tax that prompted the downfall of her predecessor, investment bankers said.

"A lot of our clients are interested in making increased investments in resources," said Simon Ranson, head of mergers and acquisitions at Citigroup Inc in Sydney. "The developments are being taken very positively. Clients are much happier now."

Mining acquisitions in Australia tumbled to a more than four-year low this quarter after Kevin Rudd, dumped as leader by his party, proposed the resources levy on May 2. As companies including Xstrata Plc and BHP Billiton Ltd lobbied to change the tax, buyers and sellers of assets struggled to agree on valuations, bankers have said.

Gillard, hours after being elected the new Labor Party leader, told reporters she "will seek consensus" over the 40 percent levy on mining profits. "We need to negotiate, we must end this uncertainty," she said.

The number of mining transactions in Australia tumbled to 48 this quarter, valued at a total of $879 million, according to data compiled by Bloomberg. That compares with 89 deals worth $9.11 billion a year earlier, and is on pace for the lowest value since the fourth quarter of 2005.

Rudd wanted to start the tax from 2012, raising an estimated A$12 billion ($10 billion) in the first two years. Miners attacked the government with a blitz of television advertisements. Rudd's ratings suffered and he was forced out.

While Gillard, 48, told parliament on Thursday that miners can pay more tax and Australians deserve a larger share of the country's mineral wealth, she also promised "genuine negotiations". She axed government television advertisements in support of the tax and asked the miners to do the same.

"The government is opening its door and I'm asking them to open their minds," the new prime minister told lawmakers. "At the appropriate time, the government will make further announcements."

Related readings:  New Australian PM pledges to end mine tax row  Gillard replaces rudd, becomes Australia's 1st female PM  Mining tax may boost Oz PM's appeal  Australia rebuts mining tax 'myths'  BHP Billiton may renew iron-ore price push

Her comments cheered Australia's dealmakers, who have seen transactions dry up since the policy was proposed. Peabody Energy Corp, the biggest US coal company, in May cut its takeover offer for Macarthur Coal Ltd 6.3 percent to A$3.8 billion, citing the tax. Macarthur rejected the bid.

"Uncertainty is the enemy of the transaction," said Ian Maxton, Sydney-based head of investment banking at Nomura Holdings Inc in Sydney. "The new prime minister's aim to enter negotiations and get some resolution will remove uncertainty. She's certainly offering an olive branch."

Australia is the second-biggest producer of nickel and alumina, and the third-biggest producer of manganese and zinc, according to data compiled by UBS AG. The resources tax risks driving foreign investment in Australia's miners into other regions, Citigroup Inc said in a June 17 report.

"The first thing the government will want to do is sort it out," said Andrew Pridham, head of Australian investment banking at Moelis & Co. "In terms of M&A, it's a long-term process that companies go through. If there's a stable political environment in terms of policy, people are going to be more prone to making decisions."

Bloomberg News