I had vowed not to write about the resources super-profits yet again. But, like the (many) resolutions relating to the demon drink, I’ve had to break that vow.
And the news that Wayne Swan is doing a partial back-down (didn’t we just know that would happen?) by lifting the definition of super tax from 6% to 12% changes nothing. It ameliorates the disastrous consequences, not removes them.
The whole impact of this tax just keeps becoming more absurd – the retrospectivity, the probability that it has destroyed value for the long term of many mineral producers and weakened their hands when dealing with potential overseas investors or acquirers – and the past 24 hours has seen more unintended consequences popping up.
But, before we get to that, is anyone else astonished by the rhetoric and the sheer nastiness toward the mining industry that is coming out of the mouths of Wayne Swan, Lindsay Tanner, Julia Gillard and – last, but not least – Kevin Rudd?
Whoever dubbed them the four horsemen (should that be horsepersons?) of the apocalypse sure hit the nail on the head.
Astonishing is the only word for it. But they do have to keep burying those other skeletons – the pink batts, the over-priced school toilet blocks, the squibbed health and emissions reforms – don’t they?
Here’s Outcrop’ suggestion: fix the existing tax system. If, as is alleged, some of these companies are paying well below the 30% rate of company tax, you can be damned sure there are plenty of companies in other sectors enjoying the same tax breaks.
The plan for this super tax is a tacit admission that the existing company tax system is flawed.
Fix it. Make sure everyone pays their fair share of company tax. Can it be that hard?
Yes, Wayne, but this isn’t the point is it? You want a nice bit of the old them and us, fat cats versus battlers, going into an election you shouldn’t be in danger of losing.
Okay, here’s another unintended consequence, the thought of which would never have troubled the minds of Ken Henry and Wayne Swan.
OneSteel sent its shareholders a letter yesterday. There was the familiar recitation of how the company had paid its taxes, supported its 110,000 shareholders (96% of whom are registered as being in Australia) and had invested $1.4 billion since 2003.
But poor old OneSteel gets the super tax double-whammy. Not only would it apply to the company’s profits, but also its raw materials.
Its numerous concerns included this one: “Application of the tax to iron ore, dolomite and limestone resources which are not sold but are used to feed our steelmaking operation and which will significantly increase the cost of our raw materials and therefore our steel making.”
The wire services are reporting this morning that the Whyalla steelworks could be threatened; indeed, one report quoted a Credit Suisse analyst saying the operation might be forced to close.
There are profits – and then there are profits.
It’s one thing for the government to characterise the mining sector by focusing their envy-mongering on the big players, but would it ever occur to Kevin Rudd that there are companies such as Bass Metals?
Back in March, this Tasmanian miner reported an interim operating profit of $3.1 million, although it ended up being a net loss due to write-offs.
The point is, though, that Bass Metals will, all things being equal, return to a situation of making net profits in the future (although it could have to weather price dips for copper, lead and zinc in the short term).
But it has taken Bass Metals five years to get to this point. Five years of hard graft since listing, establishing (as is set out in a company presentation this week) the profitable Que River mine in Tasmania, bringing on before the end of the year a second larger mining and processing operation at Hellyer, discovering 2.3 million tonnes of high-grade copper-lead-zinc-silver resources and 1 million ounces of gold.
During all this time, the company says, there has been “a record of prudent management, a record of profit results and asset growth”
The mining industry has its battlers, too, and plenty of them.
One day, with a bit of ill-luck, they will also be slugged by the super tax. That's the sort of reward in store for companies that beat the odds in this game.
Outcrop is a weekly column on ILN’s sister publication MiningNews.net.