Just as risk aversion has vaulted back into vogue in global financial markets, a different sort of uncertainty has cast a pall on the thriving resource sector Down Under.
Australia's unwavering proposal to slap a 40% windfall tax on the profits of resource-producing operations has sent shockwaves through the mining industry. Titans BHP Billiton
While investors work out the appropriate revaluation of share prices, miners behind the scenes are no doubt working to reassess project economics for both existing operations and proposed developments. Although the deal fell through for other reasons, Peabody Energy
Fools are encouraged not to interpret such a transaction as anything more than what it is. Since this gold mine retains only 19,000 ounces of proved and probable gold reserves, it's clear that Barrick is merely monetizing the remnants of a tapped-out mine site. There is simply no reason to believe that Barrick disposed of this asset as a result of the tax.
It's important to note that the proposed tax is a tax on profits. As such, it is unlikely to hurt mine development decisions for any but the most marginal of proposed projects. Over time, the higher effective tax rate may very well encourage multinational operators to increase their focus on less punitive mining jurisdictions, but I do not foresee this tax triggering any appreciable exodus from Australian operations. If you imagine Newmont Mining
As for me, I am split between two opposing reactions to the proposed windfall tax. As an investor with heavy allocation in the mining sector, I am disappointed by the prospect of reduced margins from Australian operations. Taking off my investor's hat, however, I see logic in the notion that the non-renewable resources of any nation are held in trust for the common good of the citizenry. Whatever your reactions to this landmark proposal, I hope you will take a moment to sound off in the comments section below.