Mining tax litigation fears

The Australia is reporting that the controversial minerals resource rent tax could become a legal hot potato when the Australian Tax Office starts running the ruler over miners’ valuations.

Under the terms of the MRRT miners can reset the book value of their projects to a market value to create a bigger shield against tax.

However, the ATO needs to sign off on those valuations.

The Australian quotes tax experts as saying that the ATO would be spending an “enormous” amount of time reviewing all the market valuations.

These valuations are, after all, complex beasts. There are a range of variables involved including commodity prices, foreign exchange rates, a company’s view on the discount rate applied to its business and its own production forecasts.

“If you tweak any one of those things you can make a material difference to your valuation,” one expert said. “The tax office will trawl over each of those valuations and this issue around valuation will take a long time for the tax office to resolve.”

Supercycle crash coming

THERE are fears miners are set to fall off the commodity supercycle and take a lot of pensioners with them.

According to the Financial Times the risk of a demand drop due to a Chinese economic slow down coupled with rising costs will cruel mining stocks.

Given mining stocks make up an eighth of the market value of the FTSE 100, and, therefore, a large chunk of British retirement savings, this could have dire implications.

This is not much of a shock to Australian investors who have been hearing this bearish growling for some time. It is interesting though, to see that the fears are spreading wider.

Red tape strangling resources projects

The Business Council of Australia has weighed into the resources approval debate, pointing out that resources projects are 40% more to deliver in Australia than they are in the US.

According to the Australian Financial Review, the BCA’s calls come after Rio Tinto chairman Jan du Plessis said Australia’s attractiveness as an investment destination had changed over the past two to three years.

“There is no doubt that Australia as an investment destination has changed for the worse,” he said.

The reports that BCA chief executive Jennifer Westacott urged the government not to being complacent about rising costs for big resources projects and to act to streamline regulation.

She called for a Productivity Commission inquiry into the assessment process for major projects.

“It is critical that we are able to benchmark Australia’s performance in delivering major projects and some of the key costs associated with them because to a large extent they will determine our economic success over the next decade and beyond,” Westacott said.

According to the AFR the Minerals Council of Australia and the BCA are separately working on reports detailing the extent of overlapping federal-state regulation that delays and adds costs to vital projects.

Those reports are expected within weeks.

Japan could bring reactors back on line

A report in The Wall Street Journal citing a draft government report, hints at the possibility of Japan bring some of its nuclear reactors back on line.

According to the draft government panel report, Japan faced potential power shortfalls as high as 18.7% in the important manufacturing region around Osaka.

The projections are based on a scenario where none of Japan’s reactors have resumed operations by this summer. It also assumes the weather is as severe as in 2010 – the hottest summer since the country started collecting data in 1898.

The panel is expected to submit the report to the government as early as Saturday, after further discussions about potential steps to promote conservation, such as imposing higher rates during peak demand hours.

While the Japanese government decided in April that it was safe and necessary to bring a couple of reactors back on line, nothing has been done since.