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Jun 3, 2010

Drilling into Palmer’s myths

Clive Palmer reckons everyone knows the RSPT will never happen, which is why miners are doing so well at the moment. But he forgot to tell everyone else.

Yesterday’s debate at the National Press Club between Paul Howes and Clive Palmer over the RSPT wasn’t exactly a sell-out. Moreover, there was a curious absence of the many, many mining executives in town for ‘Minerals Week’, whom one would have thought would have been keen to support the most vociferous opponent of the RSPT.

I asked Palmer about the difference between the rhetoric of the miners and their supporters and what the industry is continuing to do on the ground. I noted that Australian-listed miners had outperformed the S&P/ASX 200 over the last month, had substantially outperformed overseas stock markets in the same period, and had seriously outperformed foreign miners.

Brazil’s Vale, for instance, supposedly poised to take advantage of our fiscal foolishness, lost 10.5% of its value in its New York listing in May. Anglo-American lost 13% on the NASDAQ. Freeport-McMoran lost 10%. Our miners only lost 6%.

Ah, replied Professor Palmer, that was because everyone knew the RSPT would never be implemented. Moreover, investment analysts were telling big investors exactly that. He named Credit Suisse.

It was the Peter Dutton defence, used by the member for Dickson to justify why he embarrassed his leader by buying BHP shares after the RSPT announcement, despite his party’s line that it was a disaster for the mining sector.

Unfortunately, the good professor’s claims are at odds with the views of a wide variety of commentators.

The chairman of Swiss outfit Xstrata, Mick Davis, chipped the Financial Times after it editorialised in favour of the tax.  “Australia’s reputation as a stable regime for foreign investment has already been damaged and investments in Australian resources are at risk of being delayed or cancelled,” Davis said. By the way, Xstrata is listed in London and derives less than 40% of its earnings from Australia, but its stock has tanked 10% in the last month, much more than local miners.

Clive’s statement was also at odds with the views of Citigroup, which complained “at the very least, the uncertainty over implementation could delay projects by 12 months.” Then again, Citigroup recommended local mining stocks as a BUY after the tax was announced, so who knows what the hell they think?

Andrew Forrest also seems to have a different view. “The uncertainty in the financial markets caused by the proposed tax” was blamed by Forrest on his decision to review FMG’s projects.

Then there’s reactionary economist ‘Henry Thornton’ who declared “Australia now is widely perceived as a high ‘sovereign risk’ place to do business” and there needs to be a law against politicians lying (a rich statement indeed in this debate).

For that matter, there’s Palmer himself, who was reported as saying when visiting Mackay two weeks ago that “with the threat of the RSPT on Mackay’s mining industry, many future developments could be put on hold”/

Then there are our colleagues at Business Spectator who have been calling for a capital strike in response to the RSPT.

Contrary to Palmer’s claim that everyone knows the tax will never be implemented so everything is sweet, the miners and their cheerleaders have been consistent in their claim that the RSPT proposal is already damaging their industry and for that matter Australia’s entire reputation.

Yet they’re outperforming the stockmarket and their foreign mining competitors.

And they’re outperforming them for a reason: they know the RSPT won’t have anything like the impact they claim.

That’s why development is going full throttle in the Pilbara.

That’s why some of the biggest names in the resources sector, including BHP and Xstrata, are happily paying over the odds to buy QR’s coal lines.

That’s why Perth mining magnate Tony Sage (who’s more of a miner than Clive will ever be) declared the tax was a killer but then bought a million shares in his own company when the price dipped.

Professor Palmer’s explanation for why the miners are doing so well at the moment is about as plausible as the analysis of Das Kapital he was offering yesterday.

Oh and there’s one other firm at odds with Palmer. I contacted Credit Suisse to find out if their analysts had been telling investors that the RSPT could be ignored as it would never pass through federal parliament, as Palmer claimed. They could only point to a research note produced on May 10 that discussed the tax.

It noted the opposition opposed the tax, and that it would need the support of an independent senator to block an RSPT bill, assuming the bill would be introduced before the 2010-elected Senate sits next year. Credit Suisse’s conclusion? “Will it get through the Senate? This is a difficult question to answer, but if we can draw one insight from the ETS experience, the bill that is put to the Senate is likely to look significantly different to this ‘first draft’.”

That’s not quite what Palmer said.  Perhaps he didn’t read Credit Suisse’s actual advice. It goes on to say:

“We have modelled a theoretical new iron ore project under the existing and proposed tax regimes. Using US$100/t installed capacity for capex and US$30/t of opex, our modelling suggests the economics are the same under both tax scenarios at a LT iron ore price of US$60/t. At prices below US$60/t, the new tax regime is actually more favourable and at prices up to US$70/t the impact on IRR in % change terms is less than 10%. Given the level of uncertainty around operating costs, capex, demand etc. we think it is safe to say that at a LT iron ore price of between US$55/t and US$70/t an investment decision is unlikely to be materially impacted by the RSPT.”

No wonder the miners stayed away from Clive yesterday.

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126 comments

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126 thoughts on “Drilling into Palmer’s myths

  1. Bill

    We might have a better debate if Clive stayed away – and Kevin stayed out of it as well…

  2. shepherdmarilyn

    Why have a debate, just tax them like we have to pay tax. No-one else gets to “negotiate” their tax rates.

  3. John

    Bernard,
    You are more in favour of this tax than Ken Henry, and he is supposedly its father.
    At least wombat-man realises this tax is not his child.
    The mother of this tax is Wayne Swan.
    It is a bastardised version of Henry’s tax.

  4. zut alors

    ‘Henry Thornton’s’ comment that there should be a law against politicians lying has me in stitches. Who would legislate this law – politicians?!

  5. mattholden

    The message the government needs to sell seems simple enough to me: tax the value of minerals, not the volume … how hard to understand is that?

  6. David

    Informative stuff BK, perhaps the likes of the scaremongering JamesK on a previous blog would absorb the figures and reflect.

  7. shepherdmarilyn

    The fact that exports went down and government spending is the only thing that stopped a massive backward economic step should have shut the whiners up, they contribute 6% to the nations GDP.

    Hands up all those people who would be destitute if we lost $6?

  8. JamesK

    Yes Bernard…we know…. ‘big cat miner’ Clive Palmer who you detest.

    Don’t for heaven’s sakes gives us an informed article on your beloved, his woeful superficial politics and capriciousness and don’t under any circumstances gives the punters an insight into the pros and cons of a rent tax and contrast that with krudd’s RSPT.

    [Moderator- this comment has been edited. Please no personal jibes against other commenters and article authors]

  9. JJ Fiasson

    A brilliant piece as usual. Clive Palmer does the mining industry no favours with his hyperbolic rhetoric day after day. I wonder if the industry will start to wise up and put him on a short leash. I’m now laughing at that mental image. Oh god.

    Anyway, the collective effort of The Daily Bludge & OzForums team has gone into building a mining tax facts site at http://www.miningtaxfacts.com.au All statements there are fully referenced with credible media sources. Hopefully this can serve as a good resource to anyone who wants to espouse the merits of the tax to anyone that will listen.

  10. shepherdmarilyn

    Actually Clive has never actually mined anything.

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