Rio Seeks Support from UK Based Investors to Fight RSTP

Submitted by Jim Thesiger on 24 May, 2010 - 13:43

The chief executive of Rio Tinto (RIO) Tom Albanese said that it is important for the UK based investors to raise their voice against the proposed controversial resource super profit tax (RSPT) on the mining sector of Australia which has created a major debate recently. The latest data shows that the tax is going to have negative impacts not only on FTSE but on the retail sector as well. It is believed that the global tax rate for Rio Tinto is going to move from 30 percent to 43 percent due to RSPT which is going to affect its profits significantly. Last week HSBC declared that earnings of Rio Tinto could drop by as much as 19 percent. According to HSBC, Rio Tinto has as much as 63 percent of its operations at Australia. RSPT is going to have effects on other mining companies like Anglo American, BHP Billiton and Xstrata as well.

Although the proposed 40 percent tax on mining profits is going to be applied on the Australia based mining operations, but it represents a substantial portion of assets that are under the ownership of the FTSE 100-listed miners. It is to be mentioned that the value of the mines under the ownership of four major mining companies worth $120 billion where BHP Billiton and Rio Tinto have their shares split among the Australia and UK based investors. Thus, the net value of the Australia based mines listed in London is around ₤60.5 billion which is as much as 4.6 percent of the FTSE 100 net capitalisation. The amount is twice as big as the media sector market value and equivalent to the market value of the retail sector.

HSBC has declared that it is going to reduce the one-year price target for Rio Tinto to ₤42 from in case the tax was introduced by the Australian Government. Rio stocks have started to feel the heat since the mid-April after the rumours regarding the new tax on the mining sector began to spread.