Angst Down Under

A proposed ‘super-profits’ tax has not slowed China’s willingness to invest in Australian mines and other enterprises. Chinese Vice President Xi Jinping signed 10 bilateral agreements with Australia this week, of which seven are in the resources and energy industries, including a $1.2 billion iron ore deal, according to Reuters.

Australia is rich in natural resources and is a key supplier of iron ore, natural gas and other resources to China. Bilateral trade agreements between the two nations are high on China’s agenda, Xi said during a business luncheon after the signing, Reuters reported.

Kevin Rudd, the Australian prime minister pushing the mine profits tax, pointed to these agreements as proof that the new tax will not dampen investment in Australia’s resource industries.

The proposed tax would cost mines and other extractive industries 40 percent on any profits exceeding a roughly 6 percent rate of return, according to the Financial Times.

Thanks to the tax, which will be voted on during a general election late in 2010 and could be modified, applied in full, or dropped, ore mining giant Rio Tinto has said that it now considers Australia a sovereign risk, Reuters reported. As it is now proposed, the tax would apply to past investments as well as future projects, the Financial Times said.

On May 2, the date that Rudd’s government proposed the new tax, at least 300 Australian mining projects, including projects planned by Rio Tinto, Xstrata and BHP Billiton, were under construction or in the planning stages, according to the Financial Times. Building these projects would normally require many thousands of tons of globally sourced project cargo.

Now, Rio Tinto may have deferred or delayed up to 35 projects, the Financial Times said. Anglo-Swiss mining company Xstrata has suspended plans to refurbish a copper mine for $496 million and to spend $581 million developing a thermal coal project, according to Industrial Info Resources, while BHP Billiton has dropped plans for a coking coal deal worth millions.

The Xtrata and Billiton projects were planned for Queensland, according to IIR. The suspensions are laid at the door of the proposed tax, which would “impair the value of previously approved projects and exploration to the point that continued investment can no longer be justified,” Xstrata Chief Executive Mick Davis said in a statement.