Xstrata Halts $1.1 Billion of Australian Mining Projects Because of Proposed Resources Super Tax

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Researched by Industrial Info Resources (Sugar Land, Texas)--Only a few days after Australian mining giant BHP Billiton Limited (NYSE:BHP) (Melbourne, Australia) shelved plans for a multimillion dollar coking coal deal in Queensland, Anglo-Swiss mining company Xstrata plc (LSE:XTA) (Zug, Switzerland) has suspended plans for $496 million of expenditure to extend the life of the Ernest Henry copper mine, as well as $581 million to develop the $4.96 billion Wandoan thermal coal project, both of which are also located in Queensland. (For additional information about BHP's decision, see June 3, 2010, article - Australia's Proposed Resource Super Profits Tax Causes BHP Billiton to Reconsider Indonesian Coking Coal Project.)

Both of these suspensions are in direct response to the Rudd government's proposed 40% resources super profits tax (RSPT). In a press release, Xstrata Chief Executive Mick Davis stated: "The RSPT has created significant uncertainty for the future of mining investment into Australia and would impair the value of previously approved projects and exploration to the point that continued investment can no longer be justified.

"Our Australian management team's analysis demonstrates that the RSPT would significantly impact the value and cash flows of both of these projects."

The planned expansion of the Ernest Henry underground copper mine would have extended the life of the mine from 2013 to at least 2024. Without the capital investment of $483 million, Xstrata will be forced to terminate approximately 60 contractors immediately. A further 190 positions that would have been created over the next 18 months will also no longer be required.

Work that was scheduled to commence in July 2010 at the Wandoan coal project will not be going ahead, including drilling, construction of workers' accommodation, communications and road upgrades. More than 3,000 jobs would have been created throughout construction and operation of the site, and associated infrastructure and exploration initiatives over the next five years.

The Xstrata Group is the fifth-largest diversified metals and mining company in the world with involvement in more than 40 operations spanning 19 countries around the globe. "We will continue to seek meaningful consultation with the federal government to engage on the industry's key concerns in respect of the RSPT," said Davis. "In the meantime, we have an obligation to make business decisions in response to changing circumstances, and we continue to develop business opportunities and develop growth projects in countries which promote competitive and predictable fiscal regimes."

Australian Prime Minister Kevin Rudd was very skeptical of the exact motives behind the decision made by Xstrata. "It is passing strange that when we have a new (tax) system which is announced just one month ago, that we have 12 months to go before drafting this legislation, 24 months away from the start of a new system, that a company of this nature would issue a statement at this time," said Rudd, who went on to say that there were many other issues that may have affected these particular projects including rail access, port infrastructure and power supply.

Whatever the exact reasons behind the decision, it seems that the very public debate between the Mining Industry and the Australian Government over this extremely controversial tax reform will continue, with neither side seemingly willing to back down.

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