Mon Jun 13, 2011 4:11am GMT
* Tax would cut Fortescue's NPV by 5 pct
* Prospects of court challenge & new anti-tax campaign (Recasts, adds quotes and background)
By Mark Bendeich
SYDNEY, June 13 (Reuters) - Australia's third-largest iron ore miner, Fortescue Metals Group Ltd , said on Monday the nation's proposed mining tax would hit the company harder than bigger rivals and cut its value by at least 5 percent.
Chief Executive Andrew Forrest called a news conference to outline his case against the 30 percent tax, saying it was unfair and would hit Fortescue much harder than larger rivals BHP Billiton , Rio Tinto and Xstrata .
"Our understanding is that, as a very obvious effect of this tax coming in, Rio, BHP and Xstrata will have a movement in net present value of 1 percent or significantly less, and some analysis shows their NPV won't move at all," he said.
"What we do know is that ours is going to move by a solid 5 percent and that's one of the many bases of the allegation of discrimination which can easily be held up against this tax."
Analysts use net present value of estimated future cash flows to calculate a company's true market value. Fortescue has a market value of about $21 billion and in February reported a seven-fold jump in half-year profit on higher iron ore prices.
Fortescue shares did not trade on Monday because of an Australian public holiday.
The government unveiled draft legislation for the mining tax last week, having consulted on the outline with Rio Tinto and BHP Billiton, Australia's largest and second largest iron ore producers, respectively, and Xstrata, a major coal producer.
The tax, due to take effect in July next year and expected to raise an estimated A$7.7 billion ($8.1 billion) in revenue in its first two years, is a watered-down version of an original 40 percent version which had enraged the powerful mining lobby.
This backlash, which featured a A$20 million ad campaign against it in the run-up to national elections in 2010, led in part to the ousting of former prime minister Kevin Rudd and the formation of a minority government for Rudd's successor, Julia Gillard.
The government may have appeased BHP Billiton, Rio Tinto and Xstrata with its watered-down version of the tax, but it now risks a fresh backlash led by Fortescue's Forrest and supported by mid-tier miners, including a possible court challenge.
Forrest said he and other miners would back a legal challenge to the tax on constitutional grounds if the law was enacted as currently drafted.
"If that's what finally appears, you may be assured that Fortescue and others will challenge a precedent (which is) so dangerous that it gives multinationals a major advantage over Australian home-grown companies," he said.
A lobby representing smaller miners, the Association of Mining and Exploration Companies, has reserved the right to revive last year's politically damaging ad campaign against the tax, the Sydney Morning Herald reported on Monday.
Forrest, who is stepping down as chief executive next month to become chairman, said he would meet government leaders in Canberra on Tuesday to push his case for changes to the tax. ($1 = 0.949 Australian Dollars) (Editing by Muralikumar Anantharaman sourced Thomson Reuters)
* Tax would cut Fortescue's NPV by 5 pct
* Prospects of court challenge & new anti-tax campaign (Recasts, adds quotes and background)
By Mark Bendeich
SYDNEY, June 13 (Reuters) - Australia's third-largest iron ore miner, Fortescue Metals Group Ltd , said on Monday the nation's proposed mining tax would hit the company harder than bigger rivals and cut its value by at least 5 percent.
Chief Executive Andrew Forrest called a news conference to outline his case against the 30 percent tax, saying it was unfair and would hit Fortescue much harder than larger rivals BHP Billiton , Rio Tinto and Xstrata .
"Our understanding is that, as a very obvious effect of this tax coming in, Rio, BHP and Xstrata will have a movement in net present value of 1 percent or significantly less, and some analysis shows their NPV won't move at all," he said.
"What we do know is that ours is going to move by a solid 5 percent and that's one of the many bases of the allegation of discrimination which can easily be held up against this tax."
Analysts use net present value of estimated future cash flows to calculate a company's true market value. Fortescue has a market value of about $21 billion and in February reported a seven-fold jump in half-year profit on higher iron ore prices.
Fortescue shares did not trade on Monday because of an Australian public holiday.
The government unveiled draft legislation for the mining tax last week, having consulted on the outline with Rio Tinto and BHP Billiton, Australia's largest and second largest iron ore producers, respectively, and Xstrata, a major coal producer.
The tax, due to take effect in July next year and expected to raise an estimated A$7.7 billion ($8.1 billion) in revenue in its first two years, is a watered-down version of an original 40 percent version which had enraged the powerful mining lobby.
This backlash, which featured a A$20 million ad campaign against it in the run-up to national elections in 2010, led in part to the ousting of former prime minister Kevin Rudd and the formation of a minority government for Rudd's successor, Julia Gillard.
The government may have appeased BHP Billiton, Rio Tinto and Xstrata with its watered-down version of the tax, but it now risks a fresh backlash led by Fortescue's Forrest and supported by mid-tier miners, including a possible court challenge.
Forrest said he and other miners would back a legal challenge to the tax on constitutional grounds if the law was enacted as currently drafted.
"If that's what finally appears, you may be assured that Fortescue and others will challenge a precedent (which is) so dangerous that it gives multinationals a major advantage over Australian home-grown companies," he said.
A lobby representing smaller miners, the Association of Mining and Exploration Companies, has reserved the right to revive last year's politically damaging ad campaign against the tax, the Sydney Morning Herald reported on Monday.
Forrest, who is stepping down as chief executive next month to become chairman, said he would meet government leaders in Canberra on Tuesday to push his case for changes to the tax. ($1 = 0.949 Australian Dollars) (Editing by Muralikumar Anantharaman sourced Thomson Reuters)
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