TAX NEWS - JUNE 2010

Xstrata Halts Investment Over Australia Mining Tax

Xstrata pulls plug on Australian mining projects to protest planned government tax

by JANE WARDELL, 03 June 2010 -- Anglo-Swiss mining company Xstrata has raised the stakes in a protest over Australia's plans to glean more taxes from the sector, announcing Thursday it will halt investments in two projects in the country and put the creation of 3,250 jobs at risk.

Xstrata PLC's decision to ax investments worth 586 million Australian dollars ($496 million) ratchets up pressure on Australian Prime Minister Kevin Rudd's government over the proposed 40 percent slug on profits generated from resources projects in the country.

Rudd wants a bigger slice of the pie from big mining companies that have benefited from burgeoning Chinese and Indian demand for minerals and energy, but the industry argues that is unfair because it fails to consider the risks taken by mining groups.

Xstrata's move appeared to confirm critic's fears that pushing ahead with the tax, currently proposed to come into force in 2012, will deter big miners from making new investments.

Rudd, who faces a general election later this year, expects the tax to raise 9 billion Australian dollars ($8.1 billion) in additional revenue a year.

"The war of words between the miners and the Australian government continue, with the miners redirecting investment spend into a mounting media attack on the Rudd's government's plans in an effort to draw the government to the negotiating table," said Ambrian's Peter Davey and Nick Mellor in a research note.

"While a full backdown by the government is too much to hope for, one can sense a compromise can be struck," they added. "The question is, how many more projects are going to be shelved before this happens and could it be settled before the general election?"

Australian iron ore producer Fortescue Metals has already threatened to abandon $15 billion of new projects unless the plans for the so-called "Resource Super Profits Tax" are watered down.

"This is now having tragic effects in the real economy," said Tony Abbott, the leader of the opposition Liberal Party. "This is now making a difference to people's lives. It's costing real money and it's costing real jobs."