Rio Tinto Expands Down Under

NEW YORK (TheStreet) -- Rio Tinto (RTP) is expanding two of its mines in Australia, yet another indication that a mining tax widely feared three months ago has all but evaporated in the wake of a political shakeup Down Under.

Rio Tinto said this week that it will invest more than $800 million to expand its Argyle diamond mine in the state of Western Australia. It's also awaiting word on whether the state government of Queensland will approve the expansion of a bauxite coal mine, called Weipa, which would include the construction of a new port and two processing facilities.

Earlier this year, in May, a 40% tax on the profits generated by mines in Australia was proposed by former Prime Minister Kevin Rudd. The move triggered such an uproar among corporate heavyweights in this most important Aussie industry that many have attributed Rudd's subsequent ouster to the mining-tax brouhaha.

After negotiations with the three biggest Australia mineral extractors -- Rio, BHP Billiton ( BHP) and Xstrata -- Rudd's successor, Julia Gillard, revised the tax proposal greatly in favor of the mining industry. Not only has the headline tax rate decreased to 30%, but it now applies apply only to iron ore and coking coal mines. Thus, the tax misses both diamonds and bauxite, which is used in the production of aluminum.

Gillard, as of last week, finally secured her position as the first woman to head Australia's parliament after a contentious effort since August to cobble together a coalition government.

Neither Gillard's Labor party, nor the opposition Liberal party, had won enough seats to form a government in the Aug. 21 elections.

In recent days, Gillard has said she wouldn't budge on the revised mining tax plan (officially known as the Mineral Resource Rent Tax, or MRRT), which critics have called watered down.

The mining industry sees it differently. "We're fine with it," said a BHP spokesman recently. And so are the other diversified mining multinational, namely Rio and Xstrata.

Smaller players focused singly on coking coal or iron ore, such as Fortescue Metals, Australia's third-largest iron ore producer, may not be as pleased. Still, Fortescue too appears to be going ahead with expansion plans that could make it the nation's biggest iron-ore miner.

Rio Tinto has been active all over the world of late. It recently scoped out Russian potash interests as it looks to keep up with the Joneses: that is, BHP and its pursuit of a blockbuster acquisition of Potash ( POT).

-- Written by Scott Eden in New York

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