Rio Tinto Annual General Meeting Shows Optimism for Global Markets, Concerns About Australian 'Super Tax'

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Researched by Industrial Info Resources (Sugar Land, Texas)--British-Australian miner Rio Tinto plc (NYSE:RTP) (London, Melbourne) held an adjourned annual general meeting this week in Melbourne. The meeting had been postponed from the originally scheduled date of April 22 because of the flight disruptions in Europe caused by the volcanic explosion in Iceland.

While Rio Tinto Chairman Jan du Plessis showed a cautious optimism about recovering markets, both he and CEO Tom Albanese expressed extreme concern about Australia's proposed Resources Super Profits Tax, which proposes a 40% tax on mining profits, including profits made from already existing investments. For additional information, see May 24, 2010, article - Proposed 'Resource Super Profits Tax' in Australia Stalls Major Project Decisions.

"While our markets have improved considerably since a year ago, we continue to be cautious about the near-term outlook," said du Plessis. "The IMF predicts global growth of nearly 4% this year, with Chinese GDP expected to grow at more than 9%. Such outcomes would have positive implications for metals and minerals markets. Nevertheless, it is clear that economic conditions on a global scale remain volatile and uncertain."

Rio Tinto's underlying earnings in 2009 were $6.3 billion, representing a 39% drop from 2008 figures. The company's largest business segment, iron ore, provided underlying earnings of $4 billion, representing a decline of almost $2 billion.

While lamenting the global economic downturn's effect on demand for metals and minerals, Albanese took a broad view of the situation. "The longer-term drivers relating to the developing world of industrialization, urbanization and increased productivity remain in place," he said. "Over the next 15 years, we expect consumption trends to lead to a doubling in demand for iron ore, aluminum and copper."

However, darkness may loom on the Australian horizon. The proposed 40% tax on resources profits has sparked angry words from the mining industry, and the Rio Tinto general meeting was no exception. Speaking of the tax's application to existing investments, du Plessis said, "Applying this tax retrospectively is a dangerous prospect and has the potential to destroy Australia's hitherto excellent reputation in the global community."

Discussing current and future projects in Australia, CEO Albanese said: "The proposed super tax is the number one sovereign risk we face anywhere in the world. We are now re-evaluating all our projects in Australia under the worst-case tax scenario, and we aren't the only ones who are doing this. Under the Henry proposals, Australia would have the highest mining taxes of any major mining country. There are plenty of investment opportunities globally, and countries with lower, stable tax regimes will be the winners at Australia's expense."

However, such rhetoric may be having its intended effect on government policy. Recent reports in the Australian media suggest that the 40% tax threshold may be raised from profits above 6% to profits above 11% or 12%. Details of this proposed change are only beginning to emerge.

For a discussion of recent developments in the Asia Pacific Middle East region, listen to our "Navigating the Currents of Change" webcast with Daryl Street, Industrial Info's manager of Metals & Minerals Research for the Asia Pacific Middle East (APME) region, based at IIR's APME office in Perth, Australia.

Industrial Info is tracking more than $22 billion of Rio Tinto projects throughout the world. One of the company's larger projects in the U.S. is the estimated $340 million, two-phase expansion of the company's copper smelter in Magna, Utah, to achieve higher efficiency in the processing of molybdenum concentrate. The first phase of the project, which has an estimated total investment value of $270 million, is scheduled to kick off next year, while the second phase will begin in 2013. Information on this and other Rio Tinto projects can be found in Industrial Info's domestic and international Metals & Minerals project databases.

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