More dominoes to fall

PRIME Minister Kevin Rudd might not be too concerned that Xstrata has shelved $586 million of projects because of the resources super-profits tax, but the Queensland Resources Council sees the company’s move as hard evidence of capital flight.
More dominoes to fall More dominoes to fall More dominoes to fall More dominoes to fall More dominoes to fall

Prime Minister Kevin Rudd

Blair Price

Xstrata suspended projects supporting the first-stage $A6 billion development of the 30 million tonnes per annum Wandoan mine in Queensland’s Surat Basin along with $400 million of underground shaft development to extend the life of the Ernest Henry copper-gold mine in the state.

“Together these two projects in Queensland would have created 3250 new jobs which are now at risk,” the Swiss mining giant said yesterday.

But there could be more project cancellations to come, with this result only coming from “initial findings” of Xstrata’s ongoing review of planned investment into its Australian operations and growth projects.

During a heated question time session in Parliament yesterday, Rudd said the government would not be intimidated by mining companies.

He added the government was not standing as the puppets of the mining industry, unlike the opposition.

QRC chief executive Michael Roche took his own shots at federal Treasurer Wayne Swan, who unexpectedly framed the budget around the tax so a surplus could be achieved in three years.

“Before leaving for China, the Treasurer dismissed the independent KPMG analysis of the potential impacts of the super tax as being inferior because it is based on mining industry assumptions,” Roche said.

“Today, real-world assumptions have been confirmed where it counts.

“The super tax virtually eliminates the net present value of the $6 billion Wandoan coal project and substantially reduces the value of the $600 million Ernest Henry underground copper project.

“More importantly for North West Queensland and the Surat Basin, Xstrata has concluded that neither project is viable if the federal government proceeds with the super tax in its current form.

“If this is not evidence of the need for the federal government to go back to the drawing board and consult with the resources sector over tax reform, it’s hard to imagine what is.”

Roche said a profits-based scheme that shared Australia’s mineral wealth without threatening new investment and jobs was surely preferable to one that closed down projects and sent investors packing for competitors like Canada and South Africa.

“Every day of federal government intransigence and self-delusion on this issue puts at risk more than $100 billion of Queensland resource projects,” he said.

“These are projects that were moving towards a final go-ahead before this super-tax hand grenade landed at the sector’s feet one month ago.”

Next in the firing line?

The Swiss miner also axed $13 million of drilling for the Rolleston West expansion and Sarum coal projects in the Bowen Basin yesterday.

The Xstrata-led Sarum joint venture was already seeking initial environmental approvals to develop a longwall and open cut project.

Open cut mining was mainly targeting the Moranbah coal measures, with an expected mine life of 22 years with 220Mt of coal to be mined, possibly with draglines.

The longwall mining component was for 30Mt at 5Mt per annum for six years once drift access was established through the highwall from the open cut mining.

In October Xstrata even submitted plans to build a new $1 billion coal export terminal with capacity of 35Mtpa on Queensland’s Balaclava Island, 40km north of Gladstone.

The new port was to cater to the company’s Oaky Creek and Rolleston mines, but was also identified as a possible alternative terminal for the Wandoan project, which is now uncertain.

The Oaky No. 1 longwall operation, part of the Oaky Creek complex, is testament to how quickly Xstrata can respond to market conditions.

Production was suspended in December 2008 in response to the steel market slump which followed the onset of the global financial crisis, but Xstrata reopened it by August 2009 after landing some spot coking coal contracts when unexpected Chinese demand helped lift the price of the commodity.

The company’s Blakefield South longwall mine is closer to kicking off but the Mangoola, Ulan West, Ravensworth North and Newlands Northern extension projects are further down the project pipeline.

In addition, Xstrata is continuing to have lengthy union battles at its Tahmoor and Ulan longwall mines.

The company’s ongoing review – triggered by the RSPT – is assessing $22 billion of investment and the potential to create 14,725 jobs, Xstrata said yesterday.

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