By Sarah Turner, MarketWatch
SYDNEY (MarketWatch) -- Coal and iron-ore extractors were on track for weekly gains in Thursday trading, with the sector getting a boost after a favorable proposal on a potential mining tax, as well as some merger-and-acquisition news.
Rio Tinto Ltd. (AU:RIO 87.20, +0.42, +0.48%) (RIO 70.97, +0.25, +0.35%) (UK:RIO 4,580, 0.00, 0.00%) shares were up 0.2% on Thursday, bringing week-to-date gains to 1.5%. BHP Billiton Ltd. (AU:BHP 46.47, +0.65, +1.42%) (BHP 91.83, +0.85, +0.93%) (UK:BLT 2,606, 0.00, 0.00%) stock edged up 0.7%, with weekly gains at 2.5%. Macarthur Coal Ltd. (AU:MCC 12.81, -0.11, -0.85%) (MACDF 13.00, +0.07, +0.54%) traded down 0.9% on Thursday, paring weekly gains to 3.2%.
Similarly, Fortescue Metals Group Ltd. (AU:FMG 6.76, -0.07, -1.02%) (FSUMY 34.30, +1.15, +3.47%) , rose 0.4% on Thursday, with weekly gains at 1.2%, and Whitehaven Coal Ltd. (AU:WHC 7.00, 0.00, 0.00%) (WHITF 6.70, -0.16, -2.33%) shares edged up 0.3%, bringing gains so far this week to 1.9%.
On Tuesday, Australia’s “Policy Transition Group,” set up to advise the government on resource-tax reform, made 94 recommendations about the technical design and implementation arrangements for the controversial, long-planned tax changes.
“We believe that our recommendations strike an effective balance between the government’s policy objective of ensuring that all Australians receive a fair return from the use of our valuable mineral and petroleum resources and providing an efficient, internationally competitive, and sustainable taxation framework that supports continued investment,” the group said. See report on Australian tax policy group’s recommendations.
Many analysts tended to agree with the policy group’s advice.
“Overall, we view the report as positive for the sector, with the Policy Transition Group recommending policies that are broadly in line with the trademark agreement set back in July,” wrote mining-sector analysts at J.P. Morgan in a recent note.
They said that the key risk for the sector ahead of the tax group’s proposals had been the treatment of future increases in state and territory royalty rates and firms’ ability to deduct liabilities.
The policy group recommended that current and future royalties should be fully credited and that arrangements be put in place to ensure there isn’t an incentive for states and territories to raise royalties, the analysts said.
“This alleviates to some degree the miners’ concern of potential royalty hikes on total tax liabilities and the issue of double taxation applying to resource companies,” the J.P. Morgan analysts said.
Other recommendations made by the group included having the new tax rate apply only to iron-ore and coal companies with profits of more than 50 million Australian dollars ($50 million) a year, which analysts at Credit Suisse said would soften the effect on the miners.
“The overall impact ... is less significant — at less than 5% — than the originally proposed” version of the new resources tax announced earlier this year, the analysts said.
When the Australian government first unveiled its plans for mining-tax reform, the response from the industry was highly critical, and the resulting controversy helped lead to the departure of former Prime Minister Kevin Rudd.
The Credit Suisse analysts said that the current minority government in Australia means there are still plenty of challenges ahead before the proposals become law.
Meanwhile, a drumbeat of deals in the Australian resource space has also helped move the market. In the latest development, Australian junior miner Riversdale Mining Ltd. (AU:RIV 16.57, +0.27, +1.66%) (RFLMF 16.70, +0.20, +1.21%) received a bid from larger rival Rio Tinto, valuing Riversdale at A$3.9 billion and sending its shares jumping 1.8% in midday trade Thursday. See report on Rio Tinto bid for Riversdale.
Gains in the mining sector helped support the broader S&P/ASX 200 index (AU:XJO 4,799, +20.58, +0.43%) on Thursday, which rose 0.4% to 4,795.60.
Across Asia, Korea’s Kospi index (XX:$SEU 2,038, +1.02, +0.05%) declined 0.3% with tensions continuing to simmer on the Korean peninsula, but Hong Kong’s Hang Seng Index (HK:HANGSENG 23,068, +22.78, +0.10%) advanced 0.3%, and the Shanghai Composite (CN:SHCOMP 2,856, -21.85, -0.76%) traded 0.1% higher, recovering from a loss earlier in the day.
The Japanese stock market was closed for the Emperor’s Birthday.
