Others will join in the “capital strike” which will be a reaction to Australia suddenly becoming one of the highest-taxing countries in the world as far as mining is concerned.
Picture, for argument’s sake, how the board of BHP Billiton will compare an investment decision on the planned $A21 billion expansion of the Olympic Dam copper and uranium mine in South Australia with, say, the return on capital by the Escondida copper mine in Chile?
If that question doesn’t concentrate your mind; the comparison of a high-risk, high-tax copper mine in South Australia with a relatively low-risk, low-tax copper mine in Chile, then consider some of the other options before the BHP board, such as:
- Jansen Potash in Canada
- Resolution Copper in Arizona
- African coal
- Samarco iron ore in Brazil
- Alumina in Guinea
- Navajo Coal in New Mexico
These are not projects plucked out of the air by Dryblower. They are on either the official feasibility list of BHP, or its future options list.
It’s the same with Rio Tinto, the other big miner hit hard by the Australian government’s proposed Resource Super Tax (RST). In iron ore alone, Rio has a choice of continued investment in its Pilbara mines, or development of a giant new project in Guinea.
Until now, the Australian option won easily because Guinea is too politically unstable. From Sunday evening, when the RST was unveiled, a fresh risk analysis was underway inside Rio with the primary focus being how to compare different risks – political in Africa versus financial in Australia.
Obviously, the Australian government believes the big miners it proposes to slug with its RST will opt to continue investing in Australia.
In some cases, that will prove to be a correct assumption. In others it will not, with companies opting to invest elsewhere.
The problem for Australia is that no one knows yet what the split will be. Dryblower doubts there will be a wholesale exodus of the mining industry – though for a particularly unpleasant reason.
What happened in Canberra yesterday, the creation of an entirely new tax on mining, will be watched with awe in other mining countries and it won’t be long before governments elsewhere say they’ll have some of that too.
Just as Australia exported its JORC-code as the bible of mineral deposit analysis, so it will now export a tax code that will jack up the cost of mining worldwide.
As the rolling tax revolution hits the cost of mining everywhere, expect loud complaints from customers, especially China, because while there will be a period of instability with companies uncertain where to invest, a new and higher tax mark has been set which means more expensive minerals worldwide.
On the flipside of that argument, best described as the “devil you know” in the reason why capital might migrate to more tax-friendly locations – because it can.
Mining is one of the world’s truly global industries. It always has been, and always will be.
There are deposits of gold, copper, iron ore, coal, and anything else you care to name, around the world. Those which get developed are not always those with the highest grade, there are economic and political factors to consider, and tax is at the top of the economic list.
It would be too simple for Dryblower to suggest that the Australian government has not thought through the potential for capital migration. Of course it has.
The problem, once you go down that line of thinking, is that either it has considered capital migration and reckons miners will still prefer Australia, or it has thought about it, and doesn’t care whether the mining industry migrates.
Dryblower will resist going too far by suggesting that the RST is merely a substitute for the withdrawal of the Carbon Pollution Reduction Scheme, also known as a “great big tax” – but only because that would be tempting fate.
Somewhere, in someone’s back-pocket in Canberra, there is a copy of the CPRS and, in time, it will re-emerge, potentially whacking a second super-tax on top of the RST. Ouch. Very ouch.
Are we living in interesting times? Absolutely.
*Dryblower is a weekly column on ILN’s sister publication MiningNews.net.