Source: Reuters.com        June 03, 2010

Rio Tinto Ltd. is concerned that other nations could follow Australia's lead by introducing a windfall tax on mining profits. Australia's new super profits tax, due to come into effect in mid 2012, has angered the mining industry, which has warned it puts mine expansions at risk and could push investment overseas.

"We are concerned that other countries may see this as something they want to try out, too," Rio CEO Tom Albanese told shareholders, later adding the government should reconsider what he called a "seriously flawed" tax.

Analysts have said another resource-rich nation, Brazil, could consider Australia's tax as a precedent and also raise taxes on iron ore. Mongolia, Zambia, Peru and Ecuador have also considered and in some cases implemented a similar mining windfall profits tax. Some later repealed it.  Chile, the world's biggest copper exporter, has already announced temporary higher royalties to help pay to rebuild towns destroyed by a major earthquake earlier this year.

A senior Australian Treasury official, who is leading government consultations with miners over the new tax, said resource-rich nations were increasingly moving towards mining rent taxes and away from royalty systems. He said some provinces in Canada and some U.S. states also had resource rent taxes.

Mr. Albanese, who has labeled the new tax as his company's top global sovereign risk issue, said he was confused by the government's messages on the tax, in reference to suggestions the booming mining sector needs to be slowed to help other parts of the economy and bring down the Aussie dollar.

Rio has also strongly criticized the consultations over the new tax, saying the talks are too narrow and do not address issues around the competitiveness of Australia's industry. Treasurer Wayne Swan, however, said more than 80 mining companies were now involved in consultations over the new tax, although he declined to comment on areas of possible compromise, including the starting threshold for the new tax, set at around 6 percent and based on the 10-year government bond rate.

The government won backing for its tax plan from a group of leading economists, who said the new super profits tax would not harm Australia's current resources boom. The group of 20 mainly academic and policy economists issued an open letter in which they said the replacement of state-based royalties with a resource rent tax offered a "superior" tax that would benefit Australians.