Xstrata halts mining work in protest at Australian supertax

The battle between the Australian government and the mining sector over a controversial supertax escalated today when Xstrata, one of the biggest companies in the sector, abandoned development work at two mines in Queensland. Xstrata claimed that the proposed levy on mining profits meant it was no longer economically viable to spend A$586m (£339m) redeveloping the sites, a copper mine and a thermal coal site. The Swiss-based company ratcheted up the pressure on the Australian government by claiming the projects would have created 3,250 jobs. Xstrata also warned that the resource super profits tax (RSPT) put nearly 15,000 potential jobs at risk, as it was rethinking a total of A$22bn worth of investment in Australia. "The RSPT has created significant uncertainty for the future of mining investment into Australia and would impair the value of previously approved projects and exploration to the point that continued investment can no longer be justified," said Xstrata's chief executive, Mick Davis. The government has been feeling the anger of the industry since it said it would impose a 40% tax on profits generated from resources projects in the country. Miners claim the tax is unfair because it takes a slice of the profits from successful mines without considering the risk taken by mining groups and their shareholders. But prime minister Kevin Rudd has insisted that he is committed to reforming the tax landscape so that the government receives a larger slice of profits made from the country's natural resources. Rudd, who faces a general election this year, had rejected the miners' claims that they would be driven out of Australia as "balderdash" and "bunkum". Speaking about Xstrata's threat to cancel projects, Rudd said that it was part of the battle with the industry over tax reform. "There is going to be claim and counter claim," he added. "There will be a lot of heat and there will be a lot of acrimony in this public debate. The government is determined to prosecute tax reform." Analysts at stockbroking firm Ambrian believe Rudd's tough talking may have encouraged Davis to abandon the development at the Wandoan thermal coal project and the Ernest Henry copper mine. "The war of words between the miners and the Australian government continue, with the miners redirecting investment spend into a mounting media attack on the Rudd's government's plans in an effort to draw the government to the negotiating table," said Ambrian's Peter Davey and Nick Mellor in a research note. "While a full backdown by the government is too much to hope for, one can sense a compromise can be struck. The question is, how many more projects are going to be shelved before this happens and could it be settled before the general election?" they added. Other companies have also abandoned new projects in Australia since the supertax was announced, including gold producer AngloGold and iron ore producer Fortescue Metals Group. Fortescue said that RSPT threatened around £10bn of new projects, although unlike Xstrata's cuts this proposed spending was only at an early stage.