Small Talk: Skywest Airlines faces a hit from mining tax plan

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The Independent Online

Australia, a significant base for many international mining companies because of its mineral-rich territory, has threatened to slap a 40 per cent super-profits tax on industry, causing widespread threat of reduced investment, pulled projects and all-round tantrums.

But it will also hit the little guys. Not only are the small cap miners going to be affected (assuming they make a profit), but all the ancillary groups are in the same position.

One of them, Skywest Airlines, the Alternative Investment Market (Aim)-listed airline that essentially exists to ferry miners across the Outback, had had a very good year – until the tax announcement – with its shares up 179 per cent.

The group last week issued passenger numbers, saying that revenue from passenger kilometres increased by 1.46 per cent in April. No surprise really, since the miners have been scrambling to increase production as commodity prices have increased.

But the war of words between the major mining groups and Kevin Rudd's administration has intensified, with companies such as Rio Tinto, BHP Billiton and Xstrata all threatening to cut investment. Earlier last week, Xstrata Copper, a subsidiary of the group, said that it had halted a A$30m (£18m) exploration programme, meaning that fewer of its people will be travelling around the country.

The good news for Skywest is that the legislative change is at least two years away, and that it will only be enacted after a general election, which might oust Mr Rudd.

The other thing that the miners are reluctant to admit is that, regardless of the tax level, Australia is key to many of their operations. The supposed outrage is little more than posturing. Many are concerned less about the situation in Australia, where they can guarantee stable conditions, a skilled workforce and a proximity to key Asian markets, but rather that other governments that cannot promise these sweeteners will follow Australia's lead.

Unlike the miners, Skywest decided not to bait Mr Rudd's government: "The precise details of how this proposed tax will operate are currently subject to further public consultation with draft exposure legislation potentially released in mid-2011," said executive chairman Jeff Chatfield.

"Due to the uncertainty, Skywest does not believe that it is appropriate to speculate on any impact of the proposed [tax] on its customers and therefore by inference to its own business at this time."



Avocet Mining

Yet more upheaval at Avocet Mining, the £270.4m Aim-listed gold digger. Just a fortnight after the group announced that its chief executive, Jonathan Henry, was stepping down for destinations as yet unknown, last week the company was forced to deny that it has sold its assets in South-east Asia.

News of a sale, initially reported in the Jakarta Globe, seemed sufficiently detailed; the North Lanut and Penjom mines had been sold for $250m (£172m), the report said, to PT Lebong Tandai, a subsidiary of Indonesian group PT Merukh Enterprises. The only problem with the report is that it was not entirely true, says Avocet.

The company rushed out a statement saying that the sale had not gone through, and that discussions were at an earlier stage.

That said, the assets are almost certainly for sale. Avocet has enjoyed success after switching most of its attention to operations in West Africa, which has excited the analysts and led to increases in valuation. The South-east Asian assets are now of secondary importance to the company and $250m is a decent price for the mines – that money would also go a long way to help further development in West Africa.

Avocet's anger at the premature announcement of the sale may be somewhat faux. Do not be surprised to hear of a sale before long.



Eruma

It does not take a professor of Middle Eastern history to tell you that Lebanon has seen more than its fair share of violence in recent years.

Of course, necessity is the mother of all invention, and where there is a problem, almost always, there is a company on hand to offer a solution. Eruma, an Aim-listed group that makes bomb-proof window blinds, last week said that it had penned a deal with "a major international organisation". The buyer, a peacekeeping group, cannot be named, apparently because that would be a security risk.

Nonetheless, the $193,000 contract, is valuable to the group, and comes just months after a similar deal at Bristol Airport. "Following on from our recent £380,000 contract win with Bristol Airport ... this deal demonstrates the renewed success of Eruma's sales strategy," said Euram's chief executive, Wayne Money.

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