Mining stocks have been hit by plans by Kevin Rudd to adopt a resource rent tax on mining company profits. This is huge because basically its going to drive a lot of exploration offshore - at least in non-strategic mining industries like base metals. Even iron ore might suffer. Its not simply a case of taxing, its the lack of warning. Kevin is really going to get punished for this STUPID decision. I have written more about this on my taxation blog.
I think he will be forced to reverse this idea, or severely back down. I don't even think he understands the tax, because if he thinks a company making the same return on investment as a bond investor is fair he doesn't understand mining risks. Ok, there are huge resources of iron ore, oil & gas in WA, and the exploration risks are relatively small. But thats not true for most other mining.
My suggestion to investors is abandon mining companies with projects in Australia. I am curious - is this a project-related tax or a corporate tax, because if its a corporate tax, he is destined to push all mining companies offshore. Is this a project tax? Then it pushes investment offshore, so I can still invest in mining companies with projects overseas.
I think this is not going to last. Australia Minerals Council CEO is currently hyperventilating, but will be on the next flight to Canberra, to talk Rudd down out of the trees, where he is truly lost. He will understand the full force of the mining industry in the next election if he does this. Twiggy Forester of Fortescue Mining fame will I suspect be spending $20mil on campaigning in the next election if I am not mistaken.
P.S. Please don't tell me I don't know what fascism is....I have yet to meet anyone who knows. But its the only word you might understand since too few people are politically correct. Read my taxation and politics blogs and you will understand.
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Andrew Sheldon www.sheldonthinks.com
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