Swan swoops on miners

Resources Corner

Wayne Swan’s sixth budget has forecast a shift from the resource investment boom and into a fresh boom in production and exports, a shift Mr Swan says will shuffle the economy toward wider sources of economic growth. Businesses will endure $4.2 billion in higher taxes over four years, on the back of measures implemented to stamp out loopholes allowing companies to avoid paying tax. The corporate tax crackdown will see tighter rules for businesses that split profit across entities and attempt overseas tax dodges.
 
Mining companies will be hit with tighter rules for depreciating mineral exploration assets, as ongoing global volatility and the high Aussie dollar hamper prices and profits and trigger significant revenue writedowns, which are at a level seen on just one other occasion since the great depression. The write downs amount to $170 billion over five years. 
The mining tax estimate has been reduced from $13.4 billion to $3.3 billion after it failed to achieve the promised spoils trumpeted last year.
 
Economic news
 
China’s inflation rate rose more than expected but remained below government forecasts last month. Official data from the National Bureau of Statistics shows China’s inflation increased to 2.4 per cent in April from 2.1 per cent the month before and below the Chinese government’s forecast annual rate of 3.5 per cent.
 
NAB’s monthly business survey has indicated a 4 point drop in business confidence in April, coming in at an index reading of negative 2. The dip comes as sentiment in the mining sector fell to its lowest level in four years. The reading reverses a jump in business confidence in March.
 
Commentary
 
Ian Finch from IronClad Mining Limited (ASX:IFE) spoke to FNN about Wayne Swan’s federal budget, claiming the treasurer was slightly out of touch with his predictions of a shift from the resources investment boom: 
 
“Wayne Swan has obviously never been to China, if he has he’s obviously not been looking around, and he hasn’t been delving into his record books to see what happened to the erstwhile third biggest economy in the world in Japan. Now I’m old enough to tell you that Japan tooled up in the 1960’s and it affected the world’s economy for 12 years. China is going absolute gangbusters and I believe clearly that is going to fuel our industry for the next 20 years. China is 20 times bigger than Japan.”
 
Big miners, small dividends?
 
Rio Tinto Limited (ASX:RIO) has been questioned by shareholders, who want larger dividend payouts. However, Chairman Jan Du Plessis says the company has reassessed its dividend policy and decided to stay with the status quo. Mr Du Plessis says if the company uses its franking credits to pay share holders, it would not have enough money to reinvest in the company.

BHP Billiton Limited (ASX:BHP) chief executive Andrew Mackenzie is promising to cut capital and exploration spending by as much as $7 billion annually within the next three years. Mr Mackenzie told a conference in Barcelona that capital and exploration spending for the 2014 financial year will decline to about $US18 billion, down from $US22 billion in 2013, with more cuts to follow.
 
Karoon careening with confidence
 
Karoon Gas Australia Limited (ASX:KAR) says the potential size of its Bilby oil discovery offshore Brazill has expanded. A total of seven oil samples have now been recovered to the surface, with one opened for early oil quality assessment. Karoon says the discovery of oil provides confidence in other prospects within Karoon’s Brazilian exploration blocks. 
 
Aquila Resources Limited (ASX:AQA) has lodged an insurance claim for the Isaac Plains Coal Mine worth $94.4 million, despite selling its 50 per cent stake in the Queensland mine last year. The claim is regarding property damage and business interruption caused by flooding at the mine at the end of 2010. 
 
Santos Limited’s (ASX: STO) incoming chairman Ken Borda has vowed to review the oil and gas producer’s dividend policy as it approaches production at its PNG LNG Project. 
The $US19 billion project in Papua New Guinea is expected to start shipments to Asia next year. Mr Borda says Santos wants to reward shareholders as earnings increase and will aim to strike a balance between dividends and investment for growth.
 
Coffey International has flagged the axing of as many as 150 jobs in the wake of a continued contraction in resource sector spending, which has hit revenues and forced it to boost restructuring charges to as much as $10 million.

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