Australia, which accounts for the bulk of Rio’s revenue from iron ore, coal and other commodities, had been considered a top safe-haven investment destination for miners hunting the raw materials to fuel Asia’s growth.
But plans by Prime Minister Kevin Rudd to introduce a 40 per cent tax on miners’ so-called super profits has sparked a high-stakes political battle ahead of a general election later this year.
“This is my number one sovereign risk issue on a global basis,” chief executive Tom Albanese said, noting that the tax had set up the prospect of a long period of uncertainty which would hinder new investment.
Albanese’s remarks were seen as adding pressure on Canberra to scrap or alter the plan as government representatives enter a second week of industry consultations. Separate meetings late last week with Rio and BHP Billiton yielded no modifications.
“The issue is the potential magnitude of the change this tax will bring about and that has heightened concerns of sovereign risk here in Australia,” said Wilson HTM analyst John Young.
Albanese’s comments helped drive the Australian currency down against the greenback and the yen by more than one per cent, on mounting concerns that Rio, BHP, Fortescue Metals Group and other miners could deliver on their threats to pull out billions of dollars of investments.