London listed coal and copper mining giant Xstrata Plc (LON:XTA) has suspended A$586m (£337m) of expenditure to develop both the A$6bn Wandoan thermal coal project and a A$600m project to extend the life of the Ernest Henry copper mine, both in Australia, with immediate effect. The company said the decisions represented the initial findings from its ongoing review of planned investment into its Australian operations and growth projects as a result of the Australian Government's recently proposed Resource Super Profits Tax (RSPT). Together the two projects in Queensland would have created 3,250 new jobs which are now at risk. The review includes growth projects comprising total investment of A$22bn and the potential to create 14,725 new jobs.

In May, the Australian Government announced new tax proposals directed at mining companies and is looking to raise around A$12bn during the first two years of the new “super tax” in order to prop up retirement payouts for workers. The policy change comes in an election year for Australia but has nevertheless triggered heated debate in the country about how the new tax could impact on regional economies.

Mick Davis, Xstrata’s chief executive, said: “The RSPT has created significant uncertainty for the future of mining investment into Australia and would impair the value of previously approved projects and exploration to the point that continued investment can no longer be justified. Our Australian management teams' analysis demonstrates that the RSPT would significantly impact the value and cashflows of both of these projects. The impact of the tax eliminates the net present value of the Wandoan coal project almost entirely and substantially reduces the value of the Ernest Henry underground shaft project. The two projects involve significant risks and total capital investment of over A$6.4bn. Neither will be viable if the RSPT is imposed.”

Mr Davis added that the Government's decision to change the rules for existing investments had introduced the significant risk that any new investment in Australia may again be subject to tax regime changes without consultation. As a result, he said any potential Australian mining investment now needed to show a higher rate of return to compensate for the impact of the world's highest mining taxation on cashflows. Investors will also expect higher project returns to justify the increased risk of investing in Australia, he said.

In response to Xstrata’s decisions,…

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