Melbourne (Platts)--29Jun2012/628 am EDT/1028 GMT

Australia's two new taxes -- the carbon tax and the minerals resource rent tax -- take effect on July 1, with industry participants believing the major impact will be on investment in Australian projects rather than on medium-term coal and iron ore prices.

In the case of the MRRT, which will see a 30% tax imposed on iron ore and coal miners whose profits exceed A$125 million (US$126 million), sources said the industry remained confused about how the tax will be applied.

"It's a total nightmare. The whole issue is highly complicated and confusing, and most companies are unsure what the impacts will be," said a senior official at an iron ore company in Perth, who declined to be named.

Citing the example of Australia's petroleum resource rent tax, where legal cases "dragged on for years," he said mining companies may end up in court battling the tax office and in the meantime, the Australian government "won't get any money."

Fortescue Metals Group has already resolved to challenge the MRRT in the High Court, calling it "unconstitutional," and the Western Australian state government may support the iron ore miner. The Australian federal government estimates the MRRT will generate A$10.6 million in revenues over the next three years, 90% of which is likely to come from BHP Billiton, Rio Tinto and Xstrata. Fortescue chairman Andrew Forrest said recently that lower iron ore prices meant Canberra would struggle to achieve this amount and the miner may not contribute anything.

Meanwhile, the new A$23/mt carbon tax could curtail Australia's nascent magnetite industry which requires a lot of energy to process ore into concentrate and pellets. The sector has to date unsuccessfully argued that a tonne of steel produced using magnetite creates less greenhouse gas than steel produced using hematite ore. Magnetite miners Gindalbie Metals and Grange Resources each estimate the tax will cost them around A$10 million a year.

Analysts are not anticipating the taxes to have much impact on coal prices. Brisbane-based RBS Morgans coal analyst Tom Sartor said there were "far bigger forces at play currently driving coal prices" than the carbon tax and the MRRT.

He said some higher-cost producers could come under margin pressure if coal prices fall further but insisted there would be "no shutdowns due to carbon pricing."

Sydney-based RBC Capital Markets analyst Chris Drew said the general market view was that "no one in coal will pay much."

He added: "The margins in coal are not as high as in iron ore, and royalty rates are also elevated which creates a buffer [before the MRRT kicks in]."

The biggest danger to the mining sector, sources said, is the perception among international investors that Australia is no longer a safe place to invest in. "Australia is now known as a country that carries greater sovereign risk than before; investors are scared the rules could be changed at any moment," the source in Perth said.

BHP has also hinted that the taxes have shaken investor confidence, which could affect its expansion plans, and Rio has cancelled its involvement in the Abbott Point coal port expansion in Queensland.

--Paul Bartholomew, paul_bartholomew@platts.com

--Edited by Deepa Vijiyasingam, deepa_vijiyasingam@platts.com

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