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Posts Tagged ‘taxation’

Copper wars: Lundin deciding on sale

May 13, 2011 Comments off

“Lundin Mining Corp. expects to say by the end of May whether it can reach a deal for the sale of the company as a whole or for the sale of individual assets. ‘We should be in a position…to give some indication (by the end of this month) in terms…of whether a transaction is likely to arise or not,’ Chief Executive Phil Wright said on a conference call Wednesday, following the release late Tuesday of the copper miner’s first-quarter results.
Lundin reported higher year-over-year earnings, but they still fell short of expectations as sales suffered from shipping disruptions. Toronto-based Lundin effectively put itself up for sale at the end of March, after a bid by Equinox Minerals Ltd. scotched plans for a merger with Inmet. Barrick Gold Corp. then agreed to buy Equinox, but Lundin executives said at the time they would continue to seek a buyer. Lundin is open to proposals to either sell the company outright or to sell off its assets piecemeal. But a sale or breakup of Lundin is ‘not a certainty,’ Mr. Wright said Wednesday.”

Source: Wall Street Journal, May 11 2011

Observations:

  • Lundin management is considering options to sell the company after they did not succeed in merging with Inmet and they decided not to cooperate with a sale to Equinox.
  • The company’s most valuable asset is a 25% stake in the world-class Tenke Fungurume project in Congo. Freeport-McMoran holds the majority stake in this project and has the first right to buy Lundin’s stake if Lundin decides to sell.

Implications:

  • The difference in taxation of an asset sale compared to a share sale will be an important consideration for Lundin, although the $100mln taxation hit of a total asset sale corresponds to only some 2% of the company value. Most likely it is easier to get a good price for individual assets (especially Tenke Fungurume) and in that way maximize total value for Lundin’s shareholders.
  • The actions by Lundin’s management to put the company up for sale seem to indicate mr. Lundin, the founder and chairman of the company, has given up the hope to keep his company independent or to merge it with another small party to create a larger player.

©2011 | Wilfred Visser | thebusinessofmining.com

Resource industry angry at tax increases

May 4, 2011 Comments off

“High commodity prices are triggering a fresh wave of resource nationalism around the world as governments impose higher taxes on oil and mining companies to extract a bigger share of the profits generated from mines and wells. ‘There has been a tendency to raise taxes and royalties when oil prices are high to grab a larger share of the economic rent from oil resources,’ said Amy Myers Jaffe, energy expert at Rice University. Today, with many governments struggling with budget deficits, the temptation to extract ‘an economic ransom’ from oil and mining companies is even higher.

Meanwhile in Australia, the government has tried and failed to implement a 40 per cent ‘resources super profits tax’ on metals, minerals, oil and gas. Julia Gillard, Mr Rudd’s successor, watered down the tax, days after taking office in June in face of strong opposition from miners. The tax rate will be lowered to 30 per cent and apply only to coal and iron ore. But Ms Gillard’s government still faces a battle to pass the tax into law. The main opposition parties argue the tax is too harsh while the Green party opposes it because it does not hit miners hard enough.”

Source: Financial Times, May 2 2011

Observations:

  • Many countries are looking to copy the Australian model of increasing taxes on profits above a threshold level for specific industries.
  • Many developing countries (e.g. Guinea; Mongolia) try to create a situation that gives them income from resource projects in the long term by demanding an equity stake in projects and trying to stimulate investments from foreign multinationals.

Implications:

  • The increase in tax rates and other creative ways governments use to gain part of the income of resource companies are driven by a combination of increasing resource supply insecurity and the troublesome financial position of many governments. Resource-rich countries need to find a balance between benefiting from the mined resources and maintaining an attractive investment climate for mining firms; something the initial plan for tax reform in Australia by mr. Rudd failed to do.

©2011 | Wilfred Visser | thebusinessofmining.com