BHP, Rio Shares Drop on Australian Mine ‘Super’ Tax
May 3 (Bloomberg) -- BHP Billiton Ltd.and Rio Tinto Group, led declines in mining stocks in Sydney trading on concern Australia’s plans to impose the world’s heaviest tax regime on resource companies will cut billions from profits.
BHP and Rio fell the most in 3 months after Australia announced the so-called super tax yesterday. The 40 percent tax on resource profits will start from 2012 and raise A$12 billion ($11 billion) in its first two years. BHP, with 51 percent of its assets in Australia, said taxes on its operations there will increase to 57 percent in 2013 from 43 percent now.
“These proposals seriously threaten Australia’s competitiveness, jeopardize future investments and will adversely impact the future wealth and standard of living of all Australians,” Marius Kloppers, chief executive officer of BHP, the world’s largest mining company, said in an e-mailed statement.
Australia, the world’s biggest iron ore and coal exporter, is now the most highly taxed mining nation, reducing its competitiveness, Citigroup Inc. said. The move may reduce BHP’s earnings by 17 percent and Rio’s by 21 percent in 2013, UBS AG said today in a report.
BHP traded 3 percent lower at A$39.53, its biggest decline since Feb. 5, at the 4:10 p.m. Sydney time close. Rio, the third-biggest, declined 4.3 percent to A$69.00., also its biggest fall since Feb. 5.
Credit Swaps
The cost of protecting Rio Tinto and BHP bonds against default surged to the highest in almost two months. Credit- default swaps on Rio Tinto jumped 7 basis points to 83 basis points as of 4:34 p.m. in Sydney, the highest since March 5, according to Nomura Holdings Inc. and CMA DataVision in New York. Swaps on BHP rose 4 basis points to 64 basis points, the highest since March 8, Nomura and CMA prices showed.
Fortescue Metals Group Ltd. slipped 4.2 percent and Newcrest Mining Ltd., the largest Australian gold mining company, fell 3.1 percent. Morgan Stanley said the tax may cut its valuation of Fortescue by 36 percent.
“It’s a worst-case scenario,” Citigroup mining analyst Craig Sainsbury said. Mining companies will be taxed about 58 cents for every dollar of earnings, compared with 35 cents before the new regime, he said. The resource profits tax is on top of corporate tax and companies payments of state royalties will be rebated.
Mergers and acquisitions may “dry up” because of the uncertainty created by the proposed changes, Sainsbury said. This is “bad news for mid-cap Aussie miners,” he said.