Tony Kiernan and Mike Young of BC Iron, Russell Scrimshaw of Fortescue Metals Group, Michael Kiernan of Swan Gold, Wayne Richards of Brockman Resources, George Jones of Gindalbie Metals, Michael Amundsen of FerrAus, and Matthew Rimes of Iron Ore Holdings have together put out a statement calling on Government to shelve its tax grab on the Australian mining industry. They say the “Federal Government must abandon its new Resources Super Profit Tax (RSPT) on the Australian mining industry. The imposition of the super sized tax will have serious ramifications for investment in the sector, its international competitiveness and will directly affect Australian workers and their families. Canberra has sought to divide us from the Australian working family, that is exactly who we are and exactly who we employ, both directly and indirectly.
“The investment reaction to the policy decision to date has been severe, wiping billions of dollars from the value of Australian mining companies, most of which are majority owned by Australian shareholders. The Canadian Government is already openly stating that it expects to win investment dollars previously destined for Australian miners due to its comparatively lower tax regime. This serves as a warning as to the damaging permanent impact of a further tax on resource profits.

“The Australian mining sector is currently the highest taxed industry in the nation, at an average rate of 43% over the past nine years. The imposition of the new super tax will increase the total tax on the industry to 57%, making it the highest taxed resources industry in the world and potentially rendering our companies and our products uncompetitive on world markets.

“The Australian resources sector relies for the majority of its major project finance on international markets. This high taxation rate is a deterrent to investment and financing which is likely to force investors to offshore companies and alternative markets, restricting the resource sector’s ability to continue to drive Australia’s economic recovery and on-going growth.

“It is not only current producers, their shareholders and the communities in which they operate who will suffer. The structure of the tax means that the Federal Government has actively forced itself between companies developing new projects or planning expansions and their financiers – placing the payment of the tax ahead of interest repayments on debt financing.

“With the existing credit squeeze on world markets and the significant cost of capital, the Federal Government’s decision effectively increases the risk profile of Australian companies, and their Australian investors, which are seeking to establish new projects.

“There are significant flaws in the design of the RSPT. For example, it does not allow companies to deduct interest or the costs of equity before the RSPT is applied. Those costs can have a huge impact on a company’s bottom line.
The deduction of the 10 year bond rate will be approximately 6%. Mining projects are inherently risky and the total costs of funds for these projects are as high as 12%, and up to 20%, taking into account risk and term. Any mining company that is only making the long term bond rate should stop and put their money into government bonds as their risk/reward profile is flawed.

“The imposition of a ‘super tax’ on the minerals sectors sets a narrow revenue base to fund broad-based expenditure, which creates revenue sustainability issues for the Government. The cyclical nature of the mining sector, when combined with the brakes this super tax will place on growth, is likely to significantly reduce the revenue windfall to government over time.

“Faced with this scenario there is significant risk that the government will be forced to examine other revenue collection bases in the future, such as the Banking or Financial Services industries.

“The mining sector contributes billions of dollars annually to the Australian economy, to shareholders in our companies and to the communities in which we operate. The industry is willing to – and does – pay its share to support Australia’s economic growth. In fact, we have the opportunity to lead our country and region out of some of the most difficult financial conditions of recent times. We now call on the Federal Government to allow us to do so and abandon its policy which can only impede the growth of the sector and its long term contribution to the economy, compromise the investments of thousands of Australians and drive investors to overseas markets.