Xstrata pulls plug on Australia

Anglo-Swiss mining company Xstrata, in a move being closely watched in Canada, has raised the stakes in the industry’s protest over plans by the Australian government to glean more taxes from the resource sector.

LONDON — Anglo-Swiss mining company Xstrata, in a move being closely watched in Canada, has raised the stakes in the industry’s protest over plans by the Australian government to glean more taxes from the resource sector.

Xstrata PLC announced Thursday it will axe investments worth A$586 million (US$496 million) in two projects in Australia in a move that puts the creation of 3,250 jobs at risk.

It also ratchets up pressure on Australian Prime Minister Kevin Rudd’s government over the proposed 40 per cent tax on profits generated from resources projects in the country.

Rudd wants a bigger slice of the pie from big mining companies that have benefited from burgeoning Chinese and Indian demand for minerals and energy, but the industry argues that is unfair because it fails to consider the risks taken by mining groups.

The moves in Australia by Xstrata, which has operations around the world, including Canada, where it is a major nickel producer, appeared to confirm the fears of critics that pushing ahead with the tax, currently proposed to come into force in 2012, will deter big miners from making new investments.

Its a fight that could end up benefiting Canada, including its biggest base metals miner, Tech Resources Ltd. (TSX:TCK.B), if for example, coking coal producers in Australia scale back production and push prices higher.

“There is a positive scenario for us: if the government of Australia really does that (imposes the tax), then those companies will invest less in coking coal production,” Teck president and CEO Don Lindsay told a Goldman Sachs materials conference Thursday in New York.

Teck, which includes coal mines in British Columbia and Alberta among its many operations, said it has so far received assurances from both Ottawa and Victoria that they won’t follow Australia’s lead and impose a big tax on mining companies to help pay down massive government debts incurred during the recession.

And Alberta recently eased up on its royalties regime, offering lower rates to oil and natural gas producers to encourage the drilling of technically difficult wells.

Rudd, who faces a general election later this year, expects the tax to raise A$9 billion (US$8.1 billion) in additional revenue a year.