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The RSPT redirect

While it isn't over the line yet, Newcrest Mining's proposed merger with Lihir Gold is moving along nicely towards a successful conclusion. Similarly, BHP Billiton's announcement of a resource at its $US10 billion-plus Jansen potash project in Canada and a 2015 start for saleable production suggests that project is also on track.

The common theme to Newcrest's acquisition of Lihir and the Jansen project is that both Lihir's major resource and the Jansen resource are unaffected by the Rudd government's proposed resource super profits tax.

The RSPT makes Lihir's Papua New Guinea mine and its interests in Africa that much more appealing to Newcrest, giving it future opportunities to invest its capital outside the RSPT net, while the tax would also be pushing Jansen forward in BHP's vast development pipeline. In Canada it would face an effective tax rate of less than half that proposed by the RSPT.

While the Newcrest initial bid for Lihir was launched before the RSPT was unveiled, the deal was reworked - Newcrest increased its offer for the third time - within a couple of days of the tax being announced.

BHP's interest in potash also long pre-dates the tax, but the up-beat tone of today's announcement of a resource of 3370 million high-grade tonnes, the move to a full feasibility study in the second half of this year, detail of BHP's proposed mining plan and the announcement that initial planned production would be about 8 million tonnes a year is all suggestive of an acceleration in the group's plans for the deposit, the most advanced of a number of potential projects in the Saskatchewan basin.

Jansen and the other Canadian potash deposits had been lumped in the "future options" category of BHP's development pipeline. It is now moving rapidly towards a green light.

While BHP didn't refer to the RSPT today, everything the big miners are doing at present is framed by the context provided by the tax. The Jansen announcement is a pointed reminder to the government, and others, that the big miners do have real and attractive alternatives to investing their capital here.

The Newcrest/Lihir merger would have made sense with or without an RSPT. With most of Newcrest's operations and prospective new projects in Australia, however, the optionality that Lihir provides makes it even more compelling.

Newcrest said today that it had completed its due diligence process and entered an exclusivity period with Lihir that requires Lihir to work exclusively with Newcrest and cease any discussions with third parties.

While a number of the big global gold groups are said to have accessed Lihir's data room, there hasn't been any indication of a competing proposal.

The big overlap between the registers of Newcrest and Lihir, and the acceptability of the bulk of Newcrest's currency, its scrip, would make it difficult for other groups to gate-crash the deal, given that gold sector deals are always, primarily, scrip-based.

The other gold majors, also, don't have the "incentive" of the RSPT to motivate them to pay up largely for an asset that, while of high quality, is located in PNG. Whereas, for Newcrest, the tax is simply another layer to the compelling strategic logic of diversifying its portfolio and creating a low-cost gold major with a market capitalisation of about $25 billion.

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