Blackrock Says More Work Needed On Australia's Mining Tax Royalty Regime

Continuing uncertainty over Australia's future mining tax regime is hurting valuations of local companies, particularly iron ore explorers, managers for Blackrock Inc.'s (BLK) mining funds said Monday.

Evy Hambro, chief investment officer of the natural resources team at Blackrock, one of the world's largest specialist mining funds, said the current model of the tax "needs some further work".

"With regards to royalties, this uncertainty is not helping the valuation of the companies."

An initial version of the mine tax, the Resource Super Profits Tax, attracted a vociferous media and PR campaign from Australia's mining industry and contributed to an atmosphere of crisis that sparked the internal party coup against former prime minister Kevin Rudd.

His successor, Julia Gillard, agreed the revised Minerals Resource Rent Tax with BHP Billiton Ltd. (BHP), Rio Tinto PLC (RIO) and Xstrata PLC (XTA.LN) within a week of taking office.

But the miners now argue that the government is planning to renege on an offer of indemnity against future state royalty rises, which they believe they were granted in the 418-word heads of agreement they signed with the government.

Rio Tinto Chief Executive Tom Albanese told Australian Broadcasting Corp. television he was "confident" the issue would be resolved. "There'll be details to work through, but they'll be in the spirit of the agreement that had been signed off in July," he said.

Catherine Raw, a manager on the Blackrock equity team, said that junior iron ore explorers would be particularly affected by the MRRT, which only affects iron ore and coal miners.

"For junior iron ore companies the uncertainty is fundamental. We need to make sure we're diversifying across iron ore developments globally, and while the political risk somewhere like West Africa we had seen as more significant, as the uncertainty changed we had to switch the portfolio around," she said.

Global Mining Investments Ltd. (GMI.AU), an Australian fund managed by the Blackrock resources team, has Rio Tinto, BHP Billiton, and Xstrata as three of its top 10 holdings, with a respective 9.6%, 8.2%, and 4.6% of the fund.

-By David Fickling, Dow Jones Newswires; [phone]; [e-mail]