Carbon tax could damage foreign mining investments

The proposed carbon tax may damage foreign mining investment in Australia, with companies confused about how the tax will affect them.

In Canada for the annual Prospectors and Developers Association of Canada mining conference, Ernst and Young global mining and metals leader Mike Ellion told The Australian foreign investors are trying to figure out how the tax will affect them.

The price of carbon is not a constant political discussion in Canada, Elliot said, so investors don’t understand how the prices will impact mining operations.

"Investors don’t see the tax as representing a stop sign, but people know it’s likely to come in and while the pricing is not known, it creates uncertainty," Elliott said.

"Investors don’t like uncertainty and may tend to presume the worst, particularly out of Canada, where there isn’t a political discussion about an imminent price of carbon established here."

Australia’s biggest miners, including Rio Tinto and Woodside have publically declared their disagreement with the tax, which will be implemented from 1 July 2012.

The debate is similar to the one fought by the mining industry about the proposed super profits tax.

Last month, it was revealed that the mining industry spent $21 million to stop the mining tax.

The new mining tax, the Minerals Resources Rent Tax (MRRT) replaced Kevin Rudd’s super profits tax, but is not longer seen as a problem for those looking to invest in Australia.

"Even though there are a number of uncertainties around how it might be implemented, there is enough known about it now," he said.

"Everyone still refers to the big splash it made when (the original) RSPT came out, but it does not appear to be affecting investment activity now and it doesn’t seem likely it will affect it in the future."

Elliot told the Australian investors are expecting a rise in the number of Australian mining deals.
"There is clearly an intention to do more deals," he said.

"People are now more confident that there is not only equity but debt financing available to do some of these transactions."

"There is a creeping realisation that a lot of the supply needed is not going to come from as many of these organic projects as expected, because everyone is doing them and they cannot bring them in when they need to," he said.

Image: Xstrata

To keep up to date with Australian Mining, subscribe to our free email newsletters delivered straight to your inbox. Click here.