BHP Joins Rio Tinto, Xstrata With Credit Against Australia Mining Tax

   By Robb M. Stewart 
 

MELBOURNE--The three big mining companies that helped formulate Australia's recently imposed tax on coal and iron ore profits have each booked early deferred-tax assets, with BHP Billiton Ltd. (BHP) Wednesday recording a US$637 million income tax credit in its full-year results.

Company executives have cautioned against extrapolating what the credits may mean for future payments under the minerals resource rent tax, although with commodity prices down sharply and some in the mining industry warning little is likely to be paid toward the tax initially it has done little to quell concerns over the federal government's target of raising 13.4 billion Australian dollars (US$14 billion) over four years.

BHP said the non-cash credit reflects the future deductibility of market values of its assets under the resource tax, as well as the country's petroleum resource rent tax, "to the extent they are considered recoverable."

Rio Tinto PLC (RIO) earlier this month said it included a US$1.04 billion deferred-tax asset in its first-half results following the introduction of the tax on July 1, and Xstrata PLC (XTA.LN) recorded a tax credit of US$579 million for the tax for the half year.

Rio Tinto Chief Financial Officer Guy Elliott described it as a volatile tax. "There are a lot of moving parts in this calculation," he said, pointing to iron ore and coal prices, production volumes for each, foreign exchange rates and costs.

The tax imposes a 30% levy on profits from the production of coal and iron ore. It was negotiated between the government and the three mining companies after the mining industry mounted a campaign against an earlier proposed "super tax" that rocked the government and helped topple Prime Minister Julia Gillard's predecessor, Kevin Rudd.

The legislation allows companies with iron ore and coal operations in Australia to deduction against future tax liability based on the market value of past investments in their mining assets at May 2010. This temporary difference between the deductible amount for tax purposes and the carrying value of the assets is expected to reverse over the life of the mining operations.

Fortescue Metals Group Ltd. (FMG.AU), Australia's third-largest iron ore producer after Rio Tinto and BHP, in June lodged a High Court challenge against the tax on constitutional grounds. The Perth-based company has said it expects the earnings impact for most companies will be negligible in the first few years, although most mining firms have avoided making any forecasts.

Write to Robb M. Stewart at [e-mail]

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