UPDATE: Australian Miners Sell Off On Commodity Falls, Tax Fears

SYDNEY (Dow Jones) Mining companies endured fresh falls on the Australian Securities Exchange on Wednesday following severe drops in commodities prices overnight, with concerns mounting about Canberra's proposed super-tax on mining profits.

At 0100 GMT, all miners in the S&P/ASX 200 were down--with the exception of Eldorado Gold, which has no operations or development projects in Australia--but the market had recovered somewhat later in the session.

At 0400 GMT, the S&P/ASX 300 Metals and Mining index stood at 4082, a drop of 6.5% on its 4366 level of last Friday and and a return to levels it has not seen since February.

However the fall of 1.1% on the day was less than that of the broader S&P/ASX 200 index, which fell 1.8%, and a broad-based global selloff in commodities appeared to be weighing on prices as much as the tax fears.

The two biggest fallers late Wednesday morning were Lynas Corp. (LYC.AU), which mines rare earth minerals in Western Australia state and was down as much as 14.9% early Wednesday, and Linc Energy Ltd. (LNC.AU), a Queensland state-based gas-to-liquids company that was down 24%.

But they were followed by Aquarius Platinum Ltd. (AQP.AU) and Medusa Mining Ltd. (MML.AU), both of which mainly operate outside Australia.

Medusa put out a statement to the stock exchange late Wednesday morning stating that it would not be affected by the tax.

Nonetheless, opposition to the tax among the industry is hardening amidst fears that the profits hit would eat into investment.

Western Australian iron ore miner Cape Lambert Resources Ltd. (CFE.AU) became the first to blame the tax for a project cancellation on Tuesday when it said it would put development of a A$200 million iron ore project in the Pilbara region on hold as a result of the news.

The proposed resource profits super-tax would see mining operations in Australia taxed at a rate of 40%, giving an effective tax rate of 58% once other levies are factored in.

The government has defended the plans. Australia's Prime Minister Kevin Rudd traveled to the resource-rich Western Australia state Wednesday to begin the hard sell with mining executives.

Asked if there was any room for compromise, Rudd said he believes the 40% rate is the right one.

"We think we've got that right actually," Rudd told Australian Broadcasting Corp. radio.

"We need this super profits tax on our most profitable miners because a lot of their profits are heading overseas."

He acknowledged the plan was controversial, noting that in any move to increase taxes on industry "the bottom line is there's going to be controversy".

But Mitch Hooke, chief executive of the Minerals Council of Australia, an industry lobby group, warned of the risk of "Hanson-like xenophobia" in dismissing the national importance of companies such as BHP Billiton Ltd. (BHP.AU) and Rio Tinto Ltd. (RIO.AU), which have been singled out by Rudd for "sending profits overseas".

Pauline Hanson led the anti-immigration One Nation party to several surprise electoral successes in the late 1990s.

"BHP Billiton's head office is in Melbourne, Rio Tinto has a major presence here," said Hooke. "Ask their Australian shareholders if they think these are foreign-owned companies or not, ask the communities where they employ people. This is not just a tax on the mining industry, this is a tax on all Australians."

Other countries have watched the developments closely. Canada's Finance Minister Jim Flaherty said Tuesday that Australia's policy change could be a huge competitive advantage for Canada, whose decline in corporate tax rates to 25% by 2012 would constitute a "great attraction for investment".

Rudd wants to use the additional revenue from the mining industry to fund a progressive reduction in Australia's company tax rate to 28%, from the current 30% rate, by the year starting July 1, 2014.

 
   By David Fickling, Dow Jones Newswires; [phone]; [e-mail]; 
   (Monica Gutschi in Toronto contributed to this article)