| Australia's mining tax faces snag | Send to a friend |
| Thursday, 29 July 2010 23:24 |
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SYDNEY, Thursday Australia's proposed new mining tax and doubts on Chinese demand have made it tough for miners to arrange finance, but bankers say high-quality resource projects, particularly copper, can still get funds. Still, fears about the pace of the global economic recovery and political uncertainty in Australia ahead of an August 21 election are key barriers for miners hoping to tap funds, an issue that sets the mood ahead of a key industry meeting. Nearly 2,000 miners and financiers will gather in Kalgoorlie, Western Australia, on August 2-4 for the Diggers & Dealers meeting - as hopes earlier this year for a sustained boom in earnings from a strong global economy led by key metals buyer China wane. "There is still enormous uncertainty with investors in Australia as an investment destination," said Charles Fear, executive director of Perth-based Argonaut Capital, which specialises in advising the mining industry. Australia's government has forged a deal with global miners BHP Billiton, Rio Tinto and Xstrata to tamp down a 40 per cent super profits tax on miners that the current Labor-led government aims to pass if it wins the August polls. Labor says the government will raise A$10.5 billion in its first two years of operation from a watered-down 30 percent tax, while the conservative opposition has promised to dump the idea if it wins the election. Miners, especially small and mid-range firms, fear the tax would hit profits before financing costs, leaving less room for debt repayments. Australian iron ore miner Fortescue Metals said in May, before a cut in the proposed tax rate, it would not be able to arrange financing for its $9 billion Solomon Hub project and its $6 billion Western Hub development. Both projects were put on hold. Argonaut's Fear said a large Asian fund recently told him Australia was viewed as being as risky as Indonesia as an investment destination. "They applied almost the same sovereign risk to Australia that they did to Indonesia," Fear told Reuters. "Indonesia has tightened up its title and tenure issues and is seen as a more attractive destination. Indonesia has far more undeveloped resources and larger resources than potentially exist in Australia," he added. However, lenders said there was still appetite for financing and singled out copper as being well placed for debt and equity funding. "There is plenty of appetite for financing good quality, low-cost producers who we know and understand," said Shayne Elliott, chief executive Institutional for Australia & New Zealand Banking Group. "With more clarity around the mining tax, the pipeline for project development is gaining momentum. If the project stacks up both technically and financially, we'll definitely fund it," Elliott added. Other lenders however said that while big miners had agreed to the new tax it still created uncertainty, and there were lingering fears the government could expand it to other commodities if re-elected. Elliott said copper projects were better placed to obtain funding, especially with prices of the red metal at solid levels on strong demand hopes by top buyer China. [MET/L] However, the market was not so buoyant for gold projects even with prices holding well above $1,000 an ounce. "For gold prices, pressure is probably on the downside. So when looking to fund a project, we need to be asking what will happen if the market turns? There is also the issue of supply and demand in India," Elliott said. "But we certainly have an appetite for financing high quality, low-cost gold projects that stack up technically." Bigger clients were expected to fund deals through debt, while juniors were looking at project finance. Elliott said if project finance was highly leveraged, lenders would look for some form of hedging to mitigate commodity price risk. "But for a major player with significant cash flow, then hedging probably isn't required. We have seen a significant decline in hedging in the past five years," he said. There were also increasing signs of miners taking on strategic investors who had direct interest in projects, bankers said. South Korea's LS Nikko Copper earlier this month took a 12.5 per cent stake in Australian explorer Sandire Resources through a share placement. South Korea's POSCO and Australia's OZ Minerals Reuters Add this page to your favorite Social Bookmarking websites           |
