Miners win major compromises on Oz mining tax

The new Australian prime minister has reached a compromise on the mining tax which cost her predecessor his job.

The rate at which mining companies will be taxed on profits in Australia will now be 30% rather than the 40% originally planned. While it will still be based on their profits it will only kick in after they have achieved an annual return of 12%, rather than the 6% originally suggested. The cost of extraction will also be deductable from profits by as much as 25%.

The tax will also now only apply on iron ore and coal. While this will still hit the majors it does reduce the number of companies affected from 2,500 to 320 according to Nomura.

The news caused buying of the Australian dollar.

The tax had been heavily opposed by leading London-listed mining companies such as Rio Tinto, BHP Billiton and Xstrata which saw sharp sell-offs in their share price after it was originally announced. The tax bought an end to Kevin Rudd's premiership and led to the formation of a government by Julia Gillard.

Rio Tinto, Xstrata and BHP Billiton issued a rare joint statement to welcome the compromise claiming that they had scored victories ensuring the tax would not be applied retrospectively. The tax will be imposed from 1 July 2012.

The news sent Rio shares rising by some 1.29% in early deals to a price of £29.41. Meanwhile BHP Billiton rose 1.53% to a price of £17.18 and Xstrata rose 2.98% to £8.71 per share.

David Peever, the managing director of Rio Tinto Australia said: 'The Prime Minister’s announcement follows constructive discussions over the past week between the Government and mining companies. There is, however, still a lot of work to do. As one of Australia’s biggest taxpayers, Rio Tinto is committed to working constructively with Government to ensure that the tax system continues to encourage investment in Australia.'

Visit Citywire.co.uk throughout the day for analysis of the new tax from fund managers and analysts.