BHP, Rio's tax win may revive mining plans

rth July 3, 2010, 0:45 IST

BHP Billiton Ltd and Rio Tinto Group may join Xstrata Plc in reviving investment plans in Australia after forcing the government to water down a new tax on mining profits in the world’s biggest exporter of coal and iron ore.

Prime Minister Julia Gillard agreed to cut the planned tax to 30 per cent from 40 per cent and raise the levy’s trigger level, a week after ousting Kevin Rudd as the nation’s leader to defuse a dispute that’s damped the government’s election prospects.

“The reduction in the headline rate is an amazing concession,” said John Robinson, chairman of Global Mining Investments Ltd, which oversees about $254 million of assets, including shares of BHP, Rio and Xstrata. “It’s certainly better than I had expected.”

Xstrata, which resumed work today on a copper project in Queensland state, BHP and Rio led the campaign against the initial tax proposal, which Moody’s Investors Service estimated would have cut mining-company earnings by almost a third. Marius Kloppers, chief executive officer of BHP, said the new tax is a “material improvement” after earlier saying projects were difficult to approve under the original Rudd proposal.

“There’s no doubt the changes have moved in the direction of the miners,” Chris Drew, an analyst at RBC Capital Markets, said today by telephone from Sydney. “It’s a better outcome than the previous proposal. The impact of the tax is going to be lower, so profitability is going to improve,” he added.

BHP, the world’s biggest mining company, rose as much as 2.4 per cent to 1,735 pence in London trading, the steepest gain in almost two weeks. The stock was at 1,712 pence as of 10:29 am (local time). Rio rose 0.6 per cent. Both stocks closed little changed on the Australian stock exchange.

The cost of protecting BHP and Rio bonds from non-payment dropped. Credit-default swaps on BHP fell 5.5 basis points to 87.5, while contracts on Rio Tinto declined 6 basis points to 131, according to CMA DataVision.

“We’ve continued to maintain an exposure to the heavyweight resource stocks, particularly those involved in the negotiations: BHP and Rio Tinto,” Peter Rudd, director of mining and resources at Balnave Capital Group, told Bloomberg Television today, adding that he expects the largest stocks to rise.