Fitch says BHP-Rio will survive against mining tax
An international ratings agency forecasts that federal government's move for a super profit tax in the mining industry will not affect miners such as BHP Billiton and Rio Tinto.
According to Flinch Ratings, the super profit tax will produce no credit downgrades as the demand on its products are stronger.
"There could be some re-thinking on investment for new natural resources projects resulting in a negative cash tax impact on miners, but this news does not mark the beginning of the end for the Australian mining industry," Flitch's senior director Julian Crush said on Wednesday.
Mr. Crush said that the combined tax on BHP and Rio may sum up to $3 billion, but it would not threaten both companies to provide services and may even repay its debts.
The Federal government over the weekend released its response on the Henry Tax review which includes a proposal to tax miners with 40 per cent on its profits aside from its "normal" tax rates.
The mining tax will take effect on July 2012.
The rating agency said Rio Tinto and BHP will fare well and demands will remain strong as both companies earned around $125 billion in profits before interests, tax, depreciation, amortization, and rent for the past three years.
Fitch believed the proposed new tax may be enforced, however, the mining industry may receive grants from the government such as rebates on royalty payments or infrastructure finances.
The rating agency said it would keep an eye for any potential effect of the joint venture between BHP and Rio.
On Wednesday, BHP's shares declined to 35 cents at $38.24 while Rio Tinto increased at 22 cents to $67.28.