Australia’s lower house of has passed a legislation introducing the Minerals Resource Rent Tax on iron ore and coal to be effective from July 2012.

Edelweiss Securities Limited in a note to clients said “While the media has mentioned a rate of 30%, the effective rate is 22.5% of ex mines profits after deducting the present value of the losses/exploration expenditure/mining rights cost incurred in the past. This deduction effectively means until the miner earns a certain return on investment (risk-free rate + 7%), no MRRT is payable. Value of mining rights are included in these deductions which will mean effectively the big mining companies will not pay much MRRT in the first 3 years.”

It added that India’s proposed mining bill also has a mining tax but with much more negative impact

Mr Prasad Baji of Edelweiss Securities Limited said “As has been discussed earlier, India’s proposed mining bill has a mining tax for coal at 26% of mining profits and for non coal minerals equal to royalty. The bill is proposed to be introduced in the current session of parliament. Considering the increasing fiscal deficit that the country faces, the chances of government pushing this bill are high. As is obvious, the bill is negative for the metals and mining sector considering the increased costs without any immediate benefits. Except for thermal coal, we do not see pricing power with the companies to pass this cost on to their consumers. In case of coal, we see an initial negative impact but with the significant shortages in the country and pricing still below international pricing, over time Coal India is likely to pass it on to consumers. On a preliminary basis, a price hike of 7% on blended basis can equate to the quantum of the coal mining tax for Coal India.”

(Sourced from Edelweiss Securities Limited)