Fortescue Metals registered the biggest protest so far against the Australian government's planned profits supertax on the resources industry when it said yesterday that it is considering shelving $15bn (£10bn) worth of projects in the country. The group, an Australian iron ore specialist, said that it would withhold the investment unless Kevin Rudd's administration shelved or substantiality watered down the proposals.
The tax, which would apply from 2012 if Mr Rudd's government manages to get the legislation through parliament, will lead to an effective tax rate of about 58 per cent for miners operating in Australia.
Major international groups, including BHP Billiton, Rio Tinto and Xstrata, have poured scorn on the proposals and have threatened that the charge, known as the Henry tax, will lead to reduced investment. The proposals are thought to have contributed to the collapse earlier this week of the planned takeover of Macarthur, an Australian coal miner, by its US rival Peabody.
Fortescue's move yesterday is the largest potential withdrawal of funds. The group's chief executive, Andrew Forrest, who is one of Australia's richest men thanks to his majority stake in the company, said that bankers were unwilling to "step up to the plate" for two of its projects in the giant iron ore mining region in the Pilbera region of Western Australia.
Mr Forrest said that this would mean that local miners would need to rely on offshore equity funding, particularly from China.
"If we can't rely on our own revenue to finance a project, it absolutely means the only source of revenue, particularly for Australia's mining industry, will be the government of China."
Chinese investors have a significant minority stake in Fortescue, and it is unlikely that the group's comments would come without at least the prior knowledge of officials in Beijing. It is known that the Chinese government is concerned about the effect of the tax on metal prices. China is the world's biggest producer of steel and relies on huge quantities of Australian iron ore.
The mining industry has already caused heated diplomatic rows between the two countries in recent months. The Australian government was critical of Beijing's treatment of one of its citizens, Stern Hu, the former Rio Tinto executive who was convicted of taking bribes and commercial espionage in China earlier this year. The two countries also clashed over the setting of the annual iron ore price.
There are signs that the Australian government may be willing to water down its proposals, however. Earlier this week, the country's resources minister, Martin Ferguson, said that the 40 per cent rate could deter investment, and that a "middle ground" may be found.
Previously, Mr Rudd has said that "the Australian people deserve a fair return on the resources which they themselves own," arguing that the Canberra exchequer has seen a return of $9bn from the mining industry in the last decade, compared to profits of $80bn enjoyed by the industry.Reuse content