[miningmx.com] — IT’S the prerogative of governments to seek a greater share of the profits from mining resources when commodity prices are high, but changes in regulations and taxes should always be prospective, not retrospective, Xstrata CEO Mick Davis has said.
Delivering the diversified miner’s interim results on Tuesday, Davis said he was concerned that too many governments contemplate significant new legislation or changes to their fiscal regime which target the mining industry, without consulting the sector.
“It is perhaps unsurprising that resource nationalism risks rise when commodity prices are high, ranging from threats of nationalisation in its most extreme form, to additional imposts on the industry and increased legislation,’ Davis said.
“It is of course, the prerogative of governments to seek a greater share of the rents from mining the nation’s resources and to impose legislation as they see fit. However, an important principle should always be adhered to; changes in resource rent sharing between the owner of the resource and the beneficiator of that resource should be prospective and not retrospective.’
Davis said mining companies take on board significant financial and operational risk when they invest their capital in projects and that it was not fair to rewrite the basis on which those investments were made.
“New legislation and taxes must take into account the realities of how mining investment decisions are made, involving billion of dollars for long-term operations that may only repay the initial outlay over many years before the mine can begin to generate returns.’
Davis was especially scathing on Australia’s proposed carbon emissions tax, labelling it “a bloody stupid idea’.
“A unilateral carbon price.won’t reduce carbon output,’ he said. “It’s a blunt instrument designed to raise income.’ He said the tax would only succeed to lower Australia’s competitiveness as a mining destination in exchange for no likely reduction in global emissions.
Davis was, however, more moderate in his stance to newly elected Peruvian President Ollanta Humala, who prior to his election was known to favour increasing taxation on miners, and once campaigned to nationalise Peru’s mining industry.
Xstrata’s Peruvian assets are an important part of its strategy to increase copper volumes by 50% over 2009 levels by the end of 2014, with the Antapaccay extension planned for the group’s Tintaya mine in southern Peru due for commissioning in 2012, at a cost of $1.47bn. Additional to this is the Las Bambas greenfield project, scheduled to be operational by 2014.
Davis said Humala has underlined the government’s intention to maintain Peru’s economic growth and stability by re-nominating the governor of the Central Bank of Peru, while reappointing experienced cabinet ministers, including the minister of mines and energy.
“Other positive signals from the new administration include a commitment to respect fiscal stability agreements, currently in place for all of Xstrata’s projects,’ he said.
Davis made no reference to the debate on the nationalisation of mines in South Africa, where the group is currently constructing the second phase of the Lion chrome smelter. It is also home to some coal operations.
“Our highly diversified portfolio of assets and growth options by geography is an important means of mitigating these risks,’ he said. “With a range of potential growth projects in many different countries, diversified companies can prioritise new investments in the most favourable jurisdictions that offer a stable investment climate for the long-term commitments required to build a mine.’
