17/06/2010 - 00:00

Tax plan already having an effect

17/06/2010 - 00:00

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PRIME Minister Kevin Rudd need only speak to Grange Resources managing director Russell Clark for a first-hand account of how the proposed resource super profits is already affecting the mining industry.

PRIME Minister Kevin Rudd need only speak to Grange Resources managing director Russell Clark for a first-hand account of how the proposed resource super profits is already affecting the mining industry.

Grange is Australia’s only existing producer of magnetite iron pellets, at its Savage River operation in Tasmania, following its merger with Chinese-owned Australian Bulk Minerals in late 2008. The deal also gave Chinese steelmaker Jaingsu Shagang, a controlling stake in Grange.

Unlike hugely profitable iron ore mines in the Pilbara, Savage River has historically struggled due to its higher costs and lower margins and barely survived the downturn.

Eighteen months later, with iron ore markets booming again, Grange is finally turning healthy profits in Tasmania and is studying a $2 billion mine at its Southdown magnetite iron ore project near Albany.

But Mr Clark said the announcement of the RSPT had already cast a pall of uncertainty over Grange’s plans.

“There are aspects of the RSPT that affect us all over the place,” Mr Clark said. “For us, Savage is now making some good money, after being on the bones of its arse last year, and we are looking to put that into Southdown.

“Suddenly, if you start getting taxed more at the Savage River end … you’ve got less to put into Southdown. At the same time, you then have to raise more money through debt, which is proving to be more difficult because people are concerned by the tax regime.”

Mr Clark stressed Grange was proceeding as usual at Southdown because the fine details of the tax remained uncertain. But it would be tough to commit to development when final cost estimates are known at the end of this year, and Grange has to commit to costly engineering work.

“The problem is we don’t know what the RSPT is and the government doesn’t either,” he said. “So we will continue with the studies … but no-one is going to make an investment decision until they know what the deal is.”

Grange’s warning follows earlier claims the tax threatened major Pilbara developments planned by Fortescue Metals Group founder Andrew Forrest and Mineralogy chief Clive Palmer. But some Rudd ministers queried whether they were even real development proposals.

Following a one-on-one meeting with Mr Rudd last week, Mr Forrest said the prime minister now accepted that Fortescue’s $17 billion Western Hub and Solomon proposals were real and were at risk

Similarly, WA’s Environmental Protection Authority is currently reviewing a 330-page application for Mr Palmer’s $20 billion Mineralogy Expansion Project, targeted for completion in 2017, which will adjoin the $5 billion Sino Iron venture now being built by China’s Citic Pacific.

 

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