Macarthur commits to RSPT battle

MACARTHUR Coal chairman Keith De Lacy is worried about obtaining finance for future projects as a consequence of the Rudd government’s resource super-profits tax.
Macarthur commits to RSPT battle Macarthur commits to RSPT battle Macarthur commits to RSPT battle Macarthur commits to RSPT battle Macarthur commits to RSPT battle

Macarthur chairman Keith De Lacy.

Blair Price

He detailed his concerns in a letter to shareholders, which also updated the company’s outlook after recent takeover interest from Peabody Energy and New Hope.

As Macarthur operates low-cost and high-profit margin mines, De Lacy said the company would be negatively affected by the new tax and would need to reassess the feasibility and development timelines of its projects to ensure they remained economical.

“There is a great deal of uncertainty in relation to the proposed RSPT and the sovereign risk it represents,” he said.

“That, therefore, may result in delays in relation to mine investment and obtaining finance for future projects.”

He also attacked the government’s approach to link Australian mining to foreign ownership.

“Much has been made of the fact that foreign investors benefit from mining profits. This argument ignores the reality that billions of dollars are required to access Australia’s non-renewable resources.

“The government’s intention to take a higher percentage of mining profits also ignores the fact that many shareholders are ordinary Australians who invest in the mining industry and deserve a reasonable return on their investment.”

Unsurprisingly, Macarthur is most concerned with the 40% tax rate on the profits from exploiting resources.

De Lacy does not view the tax as a reform.

“It is an increased tax and it does not ‘replace’ state royalties, it simply undertakes to refund these – adding another layer of complexity to already onerous accounting requirements.”

Like others, he criticised the retrospective nature of the tax and the around 6% allowance rate for the scheme, which is effectively a rate of return for a risk-free investment whereas mining investors expected bigger returns for greater risks.

Macarthur chief executive Nicole Hollows serves as the president of the Queensland Resources Council and has already met with the federal government’s consultation panel on the tax in Canberra.

“As more detail comes to light, we are seeing that the impact of this tax will be felt beyond the resource industry, spreading to sectors like construction and agriculture,” De Lacy said.

While coal prices in 2009 were far off the unprecedented prices of the previous year, historically coal was still in high ground despite the impact of the GFC.

Macarthur managed to generate $A762 million of revenue in 2009 with $66 million going to royalties and $74 million lost to corporate tax.

Net profit clocked up to $169 million with $30 million dished out to shareholders.

Even though Macarthur is one of the better profit-earners around, royalties and corporate taxation swallowed up 18% of last year’s revenue before operating expenses of $36 million and port and rail expenditure of $56 million were taken into account.

In this case, these figures are greater than government claims that “our share” is $1 for every $7 of profit made by the mining industry.

Post-takeover play update

Macarthur’s share price has been on a roller-coaster ride in the past two months, hitting a high of $17.17 in mid-April and since falling off to a low of $10.02 last week.

The interest was fuelled by takeover plays for a stake in Macarthur by Peabody and New Hope while Macarthur was in the process of a mainly scrip-based transaction to take over Gloucester Coal, a move which would have given major Gloucester shareholder and commodities trader Noble Group nearly a quarter of Macarthur’s shares.

None of the corporate activity panned out, with the government’s RSPT proposal hitting Macarthur shares hard and causing Peabody to shed $1 off its $16 per share offer.

De Lacy said Macarthur was not currently in discussions with any of these parties.

“We continue to be committed to delivering our internal growth projects,” he said.

Macarthur shares closed up 3.6% to $11.89 yesterday as De Lacy assured shareholders the company would pursue all avenues to protect its shareholder interests.

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