Would a reduced super tax make miners more attractive?

The coup that led to last night's ousting of Australian prime minister Kevin Rudd has given Australia-exposed miners some cause for optimism just as renewed worries over a US-led global slowdown have taken a heavy toll on the sector in the last few weeks.

Fears that spending cuts and ongoing European sovereign debt issues could tip European economies back into recession, combined with dreadful new home sales data from the US, has dragged world miners lower on the fear of slowing global demand.

In early trading on the FTSE, Kazakhmys and Fresnillo were down nearly 4% and 3% respectively but Rio Tinto shares were down less - just 1.6% - after newly appointed Australian prime minister Julia Gillard said her government wanted to reopen discussions over the controversial Resources Super Profits Tax (RSPT).

The RSPT was to have been introduced in 2012 as the country looked to rebalance its budget and would have had a significant impact on the margins of the Australian miners.  

It was to be levied at 40% on miners' profit that are  deemed to be in excess of the government bond rate-currently around 6% - effectively adding a secondary tax alongside the 28% corporation tax they already pay.

Both BHP Billiton and Rio Tinto slammed the original proposals and have already made positive noises about the offer to renegotiate the terms of the super tax. They claimed its implementation would take their total tax rate from around 40-50% to 50-57%.

Rio Tinto's statement urged the negotiations to include a pledge not to apply the tax retrospectively and to ensure the tax was not so onerous as to hamper 'Australia’s international competitiveness as an investment destination.'

Broker Ambrian is optimistic that the removal of Rudd, who had spearheaded the super tax proposals, will lead to a reduction in the proposed 40% tax level.

It notes that, while the government has promised to give the mining sector a fair hearing, it is also committed to pushing through its budget targets to take it back to a budget surplus in 2013.  Perhaps good news for the miners tempered by not such good news for infrastructure projects or its bid to improve state pensions then.

But should investors be adding to Australia -exposed miners on this news? Ambrian rates them a strong buy, but for different reasons. It sees fears of a global slowdown as the main driver behind the sell off after 2 April - the day when the super tax was first announced.

The broker sees a raft of miners on attractive valuations, noting Vale's 19% decline, compared to Xstrata’s 22%, Rio’s 16% and Anglo’s 12%. Single commodity miners such as Lonmin, Antofagasta and Kazakhmys’ have endured 19-28% falls since 2 April.

'It said: 'Our view is that although on 2 April the announcement of the RSPT clearly hit the mining shares with exposure to Australian profits, because the market was looking for a reason to take profits, it is the general global economic malaise that has driven the miners back to current low forward PE’s.'