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TAX NEWS - June 2010

Liberia Tax: BHP to spend big in Liberia as Nasser continues tax stoush

BHP Billiton has resisted the temptation to label a $US3 billion ($3.5 billion) investment deal aimed at re-establishing Liberia in west Africa as a major supplier of iron ore to European markets as a pointed response to the Rudd government's proposed resources super profits tax.

But the BHP chairman, Jac Nasser, has told shareholders in a fireside-chat hosted on the group's website that should the proposed tax proceed as planned, Australia will lose investment to countries with more attractive tax rates.

He said that the proposed tax was "inconsistent with Australia's hard earned reputation as stable place to invest". "No matter what you do, if you are at a competitive disadvantage, you can't win in today's world," the former global chief of Ford Motor Company said.

BHP's reluctance to use its push in to Liberia as a cause celebre in the resources super profits tax debate reflects the risks of investing in west Africa. Previous presentations by the company on Liberia have listed the risks. None were specific to taxation rates.

The risks previously listed by BHP include civil wars (Liberia's last one ended in 2003), poor infrastructure, corruption, political risk, security of mining tenure and the ability to repatriate profits.

The managing director of Rio Tinto, Tom Albanese, last month angered the Rudd government with his comment that the tax was the "No.1 sovereign risk issue on a global basis". Rio has a $US2.9 billion deal with its biggest shareholder - China's Chinalco - to develop the Simandou iron ore project across the border from Liberia in Guinea.

Rio lost part of the Simandou orebody in 2008 when the Guinean government handed part of the orebody to an Israeli diamond dealer who has since brought in Brazil's Vale to provide the capital and expertise for a development.

Mr Albanese said in Paris at the weekend that the proposed tax meant Rio might have to protect its shareholder interests by looking outside Australia for new investments. He said the tax was creating an "environment of sovereign risk or a disincentive to invest in Australia".

BHP's Liberian deal covers four mining leases, now held under a mineral development agreement. The agreement sets out the legal and fiscal framework to develop the leases, including the stabilisation of taxes, duties and other trade terms. Details were not released.

The Liberian leases are within striking distance of an existing 250-kilometre rail corridor that runs from the Guinean border (where BHP is studying the development of its Nimba deposit) to the Liberian coast.

The chief executive, ferrous and coal, for BHP, Marcus Randolph, said that when combined with Nimba, the leases in Liberia have the "potential to form the backbone of a world class cluster of mines around integrated rail and port infrastructure, much in the way the Western Australian iron ore operations started in the 1960s".

His comparison with the Pilbara's iron ore riches was a touch ironic, given that BHP has fought a tough campaign to prevent third-party access to its rail and ports in the region.

The push in Liberia is predicated on third-party access to the state-owned rail and port infrastructure. Mr Randolph said BHP would look to accelerating development of its Liberian interests.

"The government of Liberia has demonstrated that it is open for business. With the completion of our mineral development agreement, we intend to expedite development of these resources," he said.

In Canberra, the Treasurer, Wayne Swan, has used his weekly "economic note" to revive the government's claim that the industry has been "short-changing" the public.

He said that using the recent coal price increases under the Queensland royalty system, only $6.20 a tonne of a $62-a-tonne increase in prices had gone to the state, with miners pocketing $55.80 a tonne extra.

But the example is bound to anger miners as Mr Swan makes no mention that the proposed 40 per cent tax is in addition to corporate tax, currently set at 30 per cent. As a result, he did not provide an estimate of the government's expected total "take" from the price increase.
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