Fortescue Questions MRRT Tax Hole
13 July 2010:
In a presentation today to the Senate Select Committee on Fuel and Energy, Fortescue Metals Group Limited has raised doubts about the Government’s ability to raise $10.5 billion by 2014 through the proposed Minerals Resources Rent Tax (MRRT).
Speaking before the Committee, Fortescue Chief Financial Officer Mr Stephen Pearce said Fortescue was unable to determine the full impact of the proposed new tax on the Company’s operations as it had not seen the details of the confidential Heads of Agreement signed by the Government with BHP Billiton, Rio Tinto and Xstrata.
He said that the absence of detailed information about the Government’s ability to raise $10.5 billion through the MRRT was creating uncertainty and nervousness among financiers who would normally be willing to provide mining project finance.
“Despite the assurances made by the Government last week that there would be no amendments to the headline rate of 30 per cent MRRT, we remain uncertain about where the Government’s taxing points will be. If the Government cannot raise $10.5 billion by 2014, then where will the money come from?” Mr Pearce said.
“Fortescue is a single commodity company. We only mine iron ore. Compared to the multi-commodity, multi-national companies which negotiated the MRRT, we have no other minerals to offset the costs associated with the MRRT. The proposed MRRT does not seem fair and, on face value, appears to favour the bigger companies which have assets that sit outside the MRRT.”
Mr Pearce said existing conflicting market analysts’ reports as to the amounts of tax that the three major companies will pay in the early years was further contributing to financial market uncertainty about the taxing points.
“As we understand it, the Government is not intending to release any details of how the amount of $10.5 billion has been derived. This leaves Fortescue and other iron ore and coal miners with significant uncertainty.
“In these circumstances, Fortescue seeks certainty on behalf of its 50,000 shareholders that the share of MRRT that it will pay in the early years will be fair and equitable compared with the bigger companies in the iron ore industry.”
Mr Pearce said the MRRT, as set out in the summary Heads of Agreement released on 2 July, appears to unfairly favour established multi-national, multi-commodity miners in some elements of its design, in particular:
- The transitional capital arrangements of market value of mining rights favours the big miners to provide shelter from retrospectivity; and
- The uplift rate of the long term bond rate plus seven per cent penalises emerging companies who will have much higher costs of funds than the three companies who signed the Heads of Agreement.
“We request that the Heads of Agreement be amended or alternatively a further Heads of Agreement be entered into between the Government and Fortescue, or with Fortescue and other emerging miners,” Mr Pearce said.
Speaking to the Senate Committee, Mr Pearce said Fortescue was seeking Government certainty on the treatment of infrastructure recharge, particularly in relation to third party access, and infrastructure capital whereby past investment in infrastructure beyond the mine gate be recognised in transition arrangements.
“We do not see either of the additional matters on which we have sought clarification as conflicting with or detracting from the terms of the Heads of Agreement that the Government has signed with the three big miners. Addressing these issues now would ensure that the position of Australian miners such as Fortescue will allow greater clarity on the principles of the MRRT.”
Mr Pearce said Fortescue will continue to work with iron ore miners outside of BHPB and Rio Tinto to seek:
- Interest deductibility;
- An increase in the uplift rate to reflect their actual costs of finance;
- An increase in the extraction allowance to 30 per cent;
- An increase in the MRRT threshold to $100 million; and
- The exclusion of magnetite from the MRRT.
For more information, please contact:
FD Third Person
08 9386 1233 / 0414 947 129