US coal giant says taxes make Australian investment less attractive

Fri, August 26, 2011
By Matt Chambers, The Australian

Peabody Energy says the government is making it less attractive to invest in Australia because of proposed taxes.

The US coal giant, jointly bidding $4.7 billion for Macarthur Coal with the world's biggest steel company ArcelorMittal, also says there is a heightened sovereign risk.

Speaking in Sydney yesterday, senior vice-president of investor relations, Vic Svec, said despite Peabody's continued investment in Australia, there was no question that the nation's relative advantage in attracting foreign investment was shrinking under the current government.

"It's really only in the last year you've heard sovereign risk being associated with Australia, and we don't like that," he said.

Peabody is Australia's fifth-biggest coal producer, but it will jump to the third-biggest if it is successful in the joint $15.50-a-share cash bid for Macarthur.

"We want Australia to be more welcoming to capital, as opposed to less welcoming, to ensure we don't take a meat cleaver to the milk cow," Mr Svec said.

He said Australia was "absolutely" becoming less welcoming to capital through the proposed mining and carbon taxes.

Peabody, the world's biggest non-government coal company, sold 246 million tonnes of coal last year - all from the US, apart from 27 million tonnes in Australia.

Despite this, its Australian operations accounted for 60 per cent of the company's earnings because most of the US coal is contracted domestically for much lower prices than are fetched on export markets.

Mr Svec said he had not planned for any formal meetings with Macarthur during his visit, but the company continued to engage with its target and hoped that an agreement could be reached.

"Their mantra of taking no action seems to be going on for a pretty long time," he said.

When Macarthur released its full-year profit on Wednesday, the company said it remained in conversations with other potential suitors but that nothing had eventuated and that shareholders should take no action on the Peabody bid.

A recommendation from the Macarthur board is expected before the end of the month.

Mr Svec said Macarthur's inability to hit production targets in four of the past five years was indicative of either poor forecasting, poor operations, or both.

Peabody had begun to receive some acceptances for its offer, Mr Svec said.

But it is only a trickle at this stage and has not strengthened the Peabody/Arcelor stake in Macarthur more than one percentage point beyond the 16 per cent it was at when the bid was lobbed a month ago.