Australia's Proposed Resource Super Profits Tax Causes BHP Billiton to Reconsider Indonesian Coking Coal Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--Australia's proposed 40% resource super profits tax is beginning to have significant effects on the project plans of large mining companies. BHP Billiton Limited (NYSE:BHP) (Melbourne, Australia) has begun to have second thoughts about a previously shelved Indonesian coking coal hub, which could result in the shelving of a multimillion-dollar coking coal deal in Queensland.

Last year, BHP shelved plans to develop a trial mine at Murawai in Indonesia and put a stop to a wider feasibility study regarding the development of a 6 million-ton-per-year coking coal hub in Indonesia. Reports have emerged that BHP is investigating the best way to exploit seven coal prospects on the island of Kalimantan.

The seven prospects are located in remote regions in the central and eastern regions of Kalimantan, with no pre-existing infrastructure. BHP has plans to develop a 131-kilometer truck route from the existing Lambunut prospect to the Mahakam River. From there, coal barges would be loaded at a future coal barge port for a 430-kilometer trip downstream, where the coal would be loaded onto ships for export.

According to the president of BHP Metallurgical Coal, Hubie Van Dalsen, the company is 'now progressing study work to identify development options,' following the Indonesian government's approval of the sale of a 25% share of the Murawai coal project for $450 million to Indonesian coal company PT Adaro Energy Tbk (JAK:ADRO) (Jakarta).

Further signs of BHP's dissatisfaction with the proposed profits tax were evident with the statement by BHP Chief Executive Marius Kloppers that the Indonesian coking coal hub could 'leapfrog the Queensland coking coal expansions if (Australian Prime Minister) Kevin Rudd's 40% tax on mining profits is implemented.'

When asked if the profits tax was kick-starting work on the Indonesian projects, an un-named spokesperson commented, "There are a range of factors that influence BHP's investment decisions; a stable and competitive tax regime is a key factor."

One of BHP's partners in iron ore projects, Itochu Corporation (TYO:8001) (Osaka, Japan) has also stated that indications were beginning to emerge of a slowing of BHP's coking coal plans as a result of the proposed tax. The Metals and Mining president of Itochu, Yoichi Kobayashi, said recently, "If the resources tax is introduced, there could be major impacts, such as expansion plans being postponed. Signs of such impacts are already starting to emerge."

Large mining companies, such as BHP and Rio Tinto plc (NYSE:RTP) (London, England), have protested vociferously over the proposed tax--to such an extent that the Rudd government has taken the controversial step of using taxpayer money to fund an advertising campaign to promote the tax. Opposition party leader Tony Abbot claims that the government has broken an election promise not to use public money to advertise its own policies.

However much the mining companies complain, the Australian government at least has the support of the Organisation of Economic Cooperation and Development (OECD) (Paris, France). In a radio interview with the Australian Broadcasting Corporation, the OECD secretary-general said that the tax represented a 'sharing of the bonanza' and that it was one of 'a number of preferred ways in which we like to see tax structures work.'

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