Xstrata and others start halting projects etc. before the Austrailia tax proposal is even in place.I can't see it passing.

Deno G.

June 3 (Bloomberg) -- Xstrata Plc shelved spending on projects worth A$6.6 billion ($5.5 billion) in Australia, the first global mining company to suspend major work because of Prime Minister Kevin Rudd’s planned tax on mine profits.

The A$586 million of work on the expansion of the Ernest Henry copper mine, approved in December, and the A$6 billion Wandoan coal project aren’t viable under the new tax, Zug, Switzerland-based Xstrata said today in an e-mailed statement.

Xstrata’s announcement may intensify pressure on the government to wind back its proposed 40 percent tax on so-called super profits. Rudd, battling a slump in approval ratings ahead of an election likely to be held this year, said the move was just the “argy-bargy of a very tense debate.”

“The suspension of Ernest Henry is certainly ratcheting up pressure in the debate about the tax,” said Peter Richardson, chief metals economist for Morgan Stanley Australia Ltd.

BHP Billiton Ltd. and Rio Tinto Group, which are reviewing projects in Australia, the biggest exporter of iron ore and coal, are also campaigning against the tax. Fortescue Metals Group Ltd., Australia’s third-largest iron ore producer, last month put $15 billion of projects on hold. Xstrata is the world’s largest thermal coal exporter.

“Where there’s uncertainty, companies will be shelving projects or putting them on hold,” said Michael Heffernan, a client adviser with Austock Securities Ltd. in Melbourne.

Voter Poll

Xstrata fell 6.5 pence, or 0.7 percent, to 985.5 pence at the close in London trading.

“Capital, rather than being spent in Australia, can be spent in the company’s operations in other countries,” Charles Kernot, an analyst at Evolution Securities Ltd. in London, said by phone today. “If it can accelerate development of other projects, that may help offset these delays.”

Mining companies and the opposition say Australia’s tax will stall investment in an industry that in April accounted for 57 percent of the value of goods exported. Australia’s trade balance unexpectedly swung to a surplus in April of A$134 million as exports of iron ore jumped by a quarter and coal shipments surged 40 percent on resurgent demand from China, according to Bureau of Statistics data released today.

“There will be claims by mining companies, statements by mining companies, there will be threats of project closures, there will be projects also frozen,” Prime Minister Rudd told reporters today in Canberra. “This is part and parcel of what will be the normal argy-bargy of a very tense debate between parts of the mining industry and the Australian government.”

Full-Page Ads

Companies have taken out full-page advertisements in Australian newspapers to lobby for changes to the legislation and the Minerals Council of Australia is running television spots. Rudd is failing to win over voters, with 41 percent opposed to the tax and 36 percent in favor, according to a Newspoll survey published June 1 in the Australian newspaper.

Xstrata shelved A$400 million of planned spending on an underground project to extend the life of the Ernest Henry mine in Queensland, Rudd’s home state, to 2024 from 2013, the company said in the statement. Work on a smaller underground mine is planned to proceed, it said.

The company also shelved A$91 million of work on the Wandoan thermal coal mine in Queensland’s Surat basin due to start in July, Xstrata said. In the past three years, A$200 million has been spent on the project, which has an initial production target of 30 million metric tons, it said.

‘Very Disappointing’

The tax “has created significant uncertainty for the future of mining investments into Australia and would impair the value of previously approved projects and exploration to the point that continued investment can no longer be justified,” Chief Executive Officer Mick Davis said in the statement.

“This is very disappointing that some companies have decided to make this kind of statement ahead of the conclusion of current discussions, two years ahead of the tax’s introduction,” Australia’s Treasurer Wayne Swan told reporters today in Shanghai.

To contact the reporters on this story: Elisabeth Behrmann at [email protected]; Firat Kayakiran in London at [email protected]

Last Updated: June 3, 2010 12:35 EDT