TAX NEWS - JUNE 2010

BHP, Xstrata, Rio Tinto tax issues to hit pensions

Proposed Resource Super Profits Tax to hit London dividends say analysts

by Gary Howes, 04 June 2010 -- An Australian 'Robin Hood' tax would ensure less profitability at BHP Billiton, Rio Tinto and Xstrata.

The result - less money will be made available in dividends resulting in reduced returns to pension funds.

BHP, Rio and Xstrata account for about 15% of the FTSE 100 says David Robertson at The Times, and their Australian operations account for about 5% of the FTSE 100.

This is larger than the retail sector and twice as big as the media sector.

Xstrata Plc yesterday announced that it could pull back on its Australian operations and growth projects as a result of the Australian Government's proposed Resource Super Profits Tax ("RSPT").

Key Queensland growth initiatives to be suspended are:

- AUD400 million Ernest Henry Mining (EHM) shaft underground mine project, already approved by Xstrata for development near Cloncurry in north-west Queensland

- AUD91 million early works and detailed design for the first stage of the 30 million tonnes per annum, AUD6 billion Wandoan Coal Project and related infrastructure;

- AUD82 million of additional exploration and sampling for Wandoan and the Surat basin; and

- AUD13 million of drilling on additional coal expansion projects in Queensland including Rolleston West and Sarum.


Mick Davis, Xstrata plc Chief Executive commented:

"The RSPT has created significant uncertainty for the future of mining investment into Australia and would impair the value of previously approved projects and exploration to the point that continued investment can no longer be justified.

"Our Australian management teams' analysis demonstrates that the Resource Super Profits Tax would significantly impact the value and cashflows of both of these projects. The impact of the tax eliminates the net present value of the Wandoan coal project almost entirely and substantially reduces the value of the Ernest Henry underground shaft project.

"The two projects involve significant risks and total capital investment of over AUD6.4 billion. Neither will be viable if the Resource Super Profits Tax is imposed."