Australian Prime Minister Kevin Rudd signalled on Wednesday he may compromise parts of his controversial mining tax to gain at least partial resource sector backing and ease concerns over his leadership ahead of elections.
Rudd seems to be adopting a divide-and-conquer strategy against the resource sector as he seeks to solve the heated tax debate ahead of an expected October poll, with his government at risk of losing office due to a string of earlier policy failures.
Standing firm against the big miners, such as a BHP Billiton, Rio Tinto and Xstrata, yet reaching eventual agreement with other miners could boost Rudd's leadership credentials with voters.
Hopes for a resolution to Australia's mining tax debate helped underpin mining stocks locally on Wednesday. Rio Tinto led gains with a 2.8 percent increase, while BHP Billiton, the world's largest mining group, added 2.2 percent.
Despite Rudd's conciliatory comments, BHP, Rio Tinto and Xstrata, who held talks with the government on Wednesday, said Canberra had still not acknowledged their main concerns, primarily that the 40 percent "super profits" tax not be retrospective so as to avoid impact on existing projects.
RUDD HINTS AT DEAL
Canberra is looking to recast its tax to help the burgeoning coal-seam gas industry, said a local media report on Wednesday.
Rudd later confirmed the government would consider treating sectors of the mining industry differently. "It's quite plain that we will be considering with different parts of the industry their respective requests for transitional arrangements which may be particular to their industries. Whether we respond positively to that is a separate matter," Rudd told journalists.
The government is negotiating with individual miners, not the industry as whole, in a move which is being seen as an attempt to split the resource sector over the tax.
"Some might call this divide-and-conquer in the face of industry discipline about maintaining a united front," wrote Laura Tingle, political editor of the Australian Financial Review.
"It could just be that if negotiations carry on long enough and produce reasonable outcomes it could still prove a positive for the prime minister," said Tingle.
Rudd's slump in voter support now has his government facing the prospect of losing office after just one term. Voters have become disillusioned with Rudd after several policy failures, most notably his inability to have his main climate change policy, a carbon trading scheme, passed by a hostile Senate.
The Australian newspaper said Canberra was ready to reach a deal on the tax with the burgeoning coal-seam gas sector..
Such a move would reduce uncertainty over roughly A$40 billion ($34.4 billion) of LNG projects in the coal-mining state of Queensland, home to Rudd and electorally vital to his government winning elections.
Coal-seam gas firms, such as multinationals BG Plc, Royal Dutch Shell and ConocoPhillips, say they should be allowed to opt out of the new mining tax and instead be subject to an existing tax regime for offshore gas developers.
Rudd's Labor government was prepared to make other changes to the tax so that some minerals would be treated differently in its calculation, the paper said without giving details. Low-value industries such as quarrying would be largely exempt.
"We're not talking about different tax rates," said Resource Minister Martin Ferguson. "What we have said we are prepared to focus on ... are the potential generous transitional arrangements."
MINING INVESTMENT CONTINUES
The mining industry has launched a multi-million-dollar advertising campaign against the planned tax, due by mid-2012,
warning it could push investors overseas. More than $20 billion of new resource investment in Australia has been put on hold.
Despite the dire warnings from miners, resource investment is continuing. Australia's Mincor Resources Ltd said on Wednesday it was reactivating the Miitel nickel mine, mothballed since December 2008, and that the mine may be bigger than previously thought due to new exploration data.
A UBS Economics survey of almost 200 mining and non-mining projects found there were enough projects under construction or committed to, that investment would rise for a year or more.
And the proposed mining tax has not dampened China's appetite for Australia's resources to fuel its growing economy.
China's Minmetals said on Wednesday it was working with its Australian arm, MMG, to identify merger and acquisition targets both locally and internationally.
Rebuffing claims Australia's risk profile was increasing, Rudd told parliament that local resource stocks had fallen only 3 percent since the tax was announced in May, while stocks in Brazil dropped 5 percent and Canadian miners were down 4 percent.