BHP Billiton ( BHP) and Rio Tinto ( RTP) are likely to underperform the Brazilian mining giant Vale ( VALE) on concerns related to Australian taxes and a China rate hike.
Rio and BHP fell 4.3% and 3.0%, respectively, on the Australian Stock Exchange Monday, following the imposition of a new mining tax by Australia. The mining giants extended the losses registered during trading on Friday which saw Rio Tinto, BHP Billiton and Vale decline by 5.76%, 4.46% and 2.55%, respectively. Spreads on credit-default swaps on Rio Tinto jumped 7 basis points to 83 basis points and on BHP were up 4 basis points at 64 basis points, according to data provided by Bloomberg. A new Australian tax regime, aimed at restructuring the tax system and for ensuring government revenue, will impose a 40% tax on the mining profits of companies to pay for infrastructure, retirement and company levy changes. Several miners have expressed their disappointment with the government's plan. BHP expects the total effective tax rate on Australian operations to increase to 57% beginning 2013 from the current 43%, according to a press release issued Sunday. "The stability and competitiveness of the tax system have been central to investment in resources in Australia. If implemented, these proposals seriously threaten Australia's competitiveness, jeopardize future investments and will adversely impact the future wealth and standard of living of all Australians." said BHP CEO Marius Kloppers. BHP has about 51% of its assets in Australia. Analysts at UBS estimate this "super tax" to reduce BHP's earnings by 17% and Rio's earnings by 21% in 2013. Mining companies will be taxed about 58% of their earnings, compared with 35% before this new tax regime. The Australian Treasury Secretary Ken Henry anticipates the tax to be implemented in 2012 which is expected to raise A$12 billion within the first two years. Prime Minister Kevin Rudd told reporters, "This will use super profits on resources owned by all Australians. This will help convert Australia's strong economic position today into enduring prosperity." In the past three years, the resources sector has contributed to around 18% of Australia's gross domestic product and 42% of export revenue, and has been the largest contributor to corporate tax revenue, according to BHP.