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 robb.stewart@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires