The Australian has run very very hard against the Rudd govt and especially on the RSPT.
But lodged away in the Business Section was this little gem.
It would have been excellent if it had been placed next to a story by Xstrata about abandoning projects ...
Thermal coal set to boom, says bank
Michael Bennet
The Australian
June 03, 2010 12:00AM
THERMAL coal could become Australia's next booming commodity, Deutsche Bank predicts.
The German investment bank's global thermal coal team expects thermal coal contract prices to rise 26 per cent to $US120 ($144) a tonne by 2012 because of a rise in net imports from China and India.
The forecast led to local analysts upgrading their earnings guidance yesterday for a swag of coal miners, including BHP Billiton and Rio Tinto, despite the threat posed by the controversial resource super-profits tax.
"The seaborne thermal coal market is experiencing a transformation which may be as significant as that which occurred for the iron ore market over the past decade," Deutsche Bank's report says.
"In a similar way, we believe China and India together could transform the demand landscape for thermal coal over the next decade, displacing current western importers and evolving to dominate the industry."
The Reserve Bank of Australia reiterated this week that despite the recent softening of commodity prices in the wake of Europe's debt crisis and a slowdown in China, Australia's terms of trade were likely to remain at high levels.
Deutsche Bank's report shows this year's thermal coal contract prices were higher than expected at about $US98 a tonne and the bank expected the "very supportive" fundamentals to continue into next year and 2012.
Thermal coal suppliers have not moved to quarterly pricing as iron ore producers have, which provided a more stable earnings outlook, Deutsche said.
NSW miners Whitehaven Coal and Centennial Coal are Deutsche's preferred thermal coal stocks, and yesterday analyst Brendan Fitzpatrick upgraded Whitehaven to a buy and lifted Centennial's earnings per share by up to 65 per cent in full-year 2012.
Analyst Paul Young also upgraded earnings of BHP and Rio by up to 5.5 per cent in 2012-13 because of the size of their thermal coal businesses relative to their other divisions.
"We believe the competition for capital with other divisions means BHP's energy coal growth pipeline is more limited than Xstrata and Anglo," he said.
Deutsche reiterated its buy rating on Rio and BHP and upgraded its price targets to $96.50 and $48, respectively.
Queensland's Macarthur Coal was upgraded to a hold.
Sunday, June 6, 2010
Thursday, June 3, 2010
Good stuff from Bernard Keane in Crikey!
CRIKEY!
Drilling into Palmer’s myths
by Bernard Keane
http://www.crikey.com.au/2010/06/03/clive-takes-on-the-rspt-and-most-of-his-mates-in-the-process/
Yesterday’s debate at the National Press Club between Paul Howes and Clive Palmer over the RSPT wasn’t exactly a sell-out. Moreover, there was a curious absence of the many, many mining executives in town for ‘Minerals Week’, whom one would have thought would have been keen to support the most vociferous opponent of the RSPT.
I asked Palmer about the difference between the rhetoric of the miners and their supporters and what the industry is continuing to do on the ground. I noted that Australian-listed miners had outperformed the S&P/ASX 200 over the last month, had substantially outperformed overseas stock markets in the same period, and had seriously outperformed foreign miners.
Brazil’s Vale, for instance, supposedly poised to take advantage of our fiscal foolishness, lost 10.5% of its value in its New York listing in May. Anglo-American lost 13% on the NASDAQ. Freeport-McMoran lost 10%. Our miners only lost 6%.
Ah, replied Professor Palmer, that was because everyone knew the RSPT would never be implemented. Moreover, investment analysts were telling big investors exactly that. He named Credit Suisse.
It was the Peter Dutton defence, used by the member for Dickson to justify why he embarrassed his leader by buying BHP shares after the RSPT announcement, despite his party’s line that it was a disaster for the mining sector.
Unfortunately, the good professor’s claims are at odds with the views of a wide variety of commentators.
The chairman of Swiss outfit Xstrata, Mick Davis, chipped the Financial Times after it editorialised in favour of the tax. “Australia’s reputation as a stable regime for foreign investment has already been damaged and investments in Australian resources are at risk of being delayed or cancelled,” Davis said. By the way, Xstrata is listed in London and derives less than 40% of its earnings from Australia, but its stock has tanked 10% in the last month, much more than local miners.
Clive’s statement was also at odds with the views of Citigroup, which complained “at the very least, the uncertainty over implementation could delay projects by 12 months.” Then again, Citigroup recommended local mining stocks as a BUY after the tax was announced, so who knows what the hell they think?
Andrew Forrest also seems to have a different view. “The uncertainty in the financial markets caused by the proposed tax” was blamed by Forrest on his decision to review FMG’s projects.
Then there’s reactionary economist ‘Henry Thornton’ who declared “Australia now is widely perceived as a high ‘sovereign risk’ place to do business” and there needs to be a law against politicians lying (a rich statement indeed in this debate).
For that matter, there’s Palmer himself, who was reported as saying when visiting Mackay two weeks ago that “with the threat of the RSPT on Mackay’s mining industry, many future developments could be put on hold”/
Then there are our colleagues at Business Spectator who have been calling for a capital strike in response to the RSPT.
Contrary to Palmer’s claim that everyone knows the tax will never be implemented so everything is sweet, the miners and their cheerleaders have been consistent in their claim that the RSPT proposal is already damaging their industry and for that matter Australia’s entire reputation.
Yet they’re outperforming the stockmarket and their foreign mining competitors.
And they’re outperforming them for a reason: they know the RSPT won’t have anything like the impact they claim.
That’s why development is going full throttle in the Pilbara.
That’s why some of the biggest names in the resources sector, including BHP and Xstrata, are happily paying over the odds to buy QR’s coal lines.
That’s why Perth mining magnate Tony Sage (who’s more of a miner than Clive will ever be) declared the tax was a killer but then bought a million shares in his own company when the price dipped.
Professor Palmer’s explanation for why the miners are doing so well at the moment is about as plausible as the analysis of Das Kapital he was offering yesterday.
Oh and there’s one other firm at odds with Palmer. I contacted Credit Suisse to find out if their analysts had been telling investors that the RSPT could be ignored as it would never pass through federal parliament, as Palmer claimed. They could only point to a research note produced on May 10 that discussed the tax.
It noted the opposition opposed the tax, and that it would need the support of an independent senator to block an RSPT bill, assuming the bill would be introduced before the 2010-elected Senate sits next year. Credit Suisse’s conclusion? “Will it get through the Senate? This is a difficult question to answer, but if we can draw one insight from the ETS experience, the bill that is put to the Senate is likely to look significantly different to this ‘first draft’.”
That’s not quite what Palmer said. Perhaps he didn’t read Credit Suisse’s actual advice. It goes on to say:
“We have modelled a theoretical new iron ore project under the existing and proposed tax regimes. Using US$100/t installed capacity for capex and US$30/t of opex, our modelling suggests the economics are the same under both tax scenarios at a LT iron ore price of US$60/t. At prices below US$60/t, the new tax regime is actually more favourable and at prices up to US$70/t the impact on IRR in % change terms is less than 10%. Given the level of uncertainty around operating costs, capex, demand etc. we think it is safe to say that at a LT iron ore price of between US$55/t and US$70/t an investment decision is unlikely to be materially impacted by the RSPT.”
No wonder the miners stayed away from Clive yesterday.
Drilling into Palmer’s myths
by Bernard Keane
http://www.crikey.com.au/2010/06/03/clive-takes-on-the-rspt-and-most-of-his-mates-in-the-process/
Yesterday’s debate at the National Press Club between Paul Howes and Clive Palmer over the RSPT wasn’t exactly a sell-out. Moreover, there was a curious absence of the many, many mining executives in town for ‘Minerals Week’, whom one would have thought would have been keen to support the most vociferous opponent of the RSPT.
I asked Palmer about the difference between the rhetoric of the miners and their supporters and what the industry is continuing to do on the ground. I noted that Australian-listed miners had outperformed the S&P/ASX 200 over the last month, had substantially outperformed overseas stock markets in the same period, and had seriously outperformed foreign miners.
Brazil’s Vale, for instance, supposedly poised to take advantage of our fiscal foolishness, lost 10.5% of its value in its New York listing in May. Anglo-American lost 13% on the NASDAQ. Freeport-McMoran lost 10%. Our miners only lost 6%.
Ah, replied Professor Palmer, that was because everyone knew the RSPT would never be implemented. Moreover, investment analysts were telling big investors exactly that. He named Credit Suisse.
It was the Peter Dutton defence, used by the member for Dickson to justify why he embarrassed his leader by buying BHP shares after the RSPT announcement, despite his party’s line that it was a disaster for the mining sector.
Unfortunately, the good professor’s claims are at odds with the views of a wide variety of commentators.
The chairman of Swiss outfit Xstrata, Mick Davis, chipped the Financial Times after it editorialised in favour of the tax. “Australia’s reputation as a stable regime for foreign investment has already been damaged and investments in Australian resources are at risk of being delayed or cancelled,” Davis said. By the way, Xstrata is listed in London and derives less than 40% of its earnings from Australia, but its stock has tanked 10% in the last month, much more than local miners.
Clive’s statement was also at odds with the views of Citigroup, which complained “at the very least, the uncertainty over implementation could delay projects by 12 months.” Then again, Citigroup recommended local mining stocks as a BUY after the tax was announced, so who knows what the hell they think?
Andrew Forrest also seems to have a different view. “The uncertainty in the financial markets caused by the proposed tax” was blamed by Forrest on his decision to review FMG’s projects.
Then there’s reactionary economist ‘Henry Thornton’ who declared “Australia now is widely perceived as a high ‘sovereign risk’ place to do business” and there needs to be a law against politicians lying (a rich statement indeed in this debate).
For that matter, there’s Palmer himself, who was reported as saying when visiting Mackay two weeks ago that “with the threat of the RSPT on Mackay’s mining industry, many future developments could be put on hold”/
Then there are our colleagues at Business Spectator who have been calling for a capital strike in response to the RSPT.
Contrary to Palmer’s claim that everyone knows the tax will never be implemented so everything is sweet, the miners and their cheerleaders have been consistent in their claim that the RSPT proposal is already damaging their industry and for that matter Australia’s entire reputation.
Yet they’re outperforming the stockmarket and their foreign mining competitors.
And they’re outperforming them for a reason: they know the RSPT won’t have anything like the impact they claim.
That’s why development is going full throttle in the Pilbara.
That’s why some of the biggest names in the resources sector, including BHP and Xstrata, are happily paying over the odds to buy QR’s coal lines.
That’s why Perth mining magnate Tony Sage (who’s more of a miner than Clive will ever be) declared the tax was a killer but then bought a million shares in his own company when the price dipped.
Professor Palmer’s explanation for why the miners are doing so well at the moment is about as plausible as the analysis of Das Kapital he was offering yesterday.
Oh and there’s one other firm at odds with Palmer. I contacted Credit Suisse to find out if their analysts had been telling investors that the RSPT could be ignored as it would never pass through federal parliament, as Palmer claimed. They could only point to a research note produced on May 10 that discussed the tax.
It noted the opposition opposed the tax, and that it would need the support of an independent senator to block an RSPT bill, assuming the bill would be introduced before the 2010-elected Senate sits next year. Credit Suisse’s conclusion? “Will it get through the Senate? This is a difficult question to answer, but if we can draw one insight from the ETS experience, the bill that is put to the Senate is likely to look significantly different to this ‘first draft’.”
That’s not quite what Palmer said. Perhaps he didn’t read Credit Suisse’s actual advice. It goes on to say:
“We have modelled a theoretical new iron ore project under the existing and proposed tax regimes. Using US$100/t installed capacity for capex and US$30/t of opex, our modelling suggests the economics are the same under both tax scenarios at a LT iron ore price of US$60/t. At prices below US$60/t, the new tax regime is actually more favourable and at prices up to US$70/t the impact on IRR in % change terms is less than 10%. Given the level of uncertainty around operating costs, capex, demand etc. we think it is safe to say that at a LT iron ore price of between US$55/t and US$70/t an investment decision is unlikely to be materially impacted by the RSPT.”
No wonder the miners stayed away from Clive yesterday.
Monday, May 31, 2010
How much profit is enough?
Coal miners to make $80b despite resources rent tax
CLANCY YEATES
Sydney Morning Herald
http://www.brisbanetimes.com.au/business/coal-miners-to-make-80b-despite-resources-rent-tax-20100530-wnfm.html
May 31, 2010
COAL miners stand to rake in earnings of more than $80 billion in the first five years of the resources ''super profits'' tax, despite having their returns trimmed by 15 per cent.
As the political brawl over the planned tax heats up, the global energy consultant Wood Mackenzie also says most coal mines planned before the tax was announced will still go ahead.
The firm's modelling found coal miners' earnings between July 2012 and 2016 would slide from $97.1 billion under the current regime to $82.3 billion with the tax. This amounts to a fall of 15 per cent.
The lead coal analyst for Australasia, Ben Willacy, said the tax would only put marginal projects at risk of failure in the short term, but the lower returns would put a question mark over projects planned for further down the track. ''Because it's a profit tax, any project that was profitable before is still profitable under the new regime,'' Mr Willacy said.
''We don't think it will make any projects unprofitable, but it will definitely distort investment decisions in the future.''
The analysis, based on 140 foreign and Australian-owned mines, also found earnings in the first full year of the tax, 2013, would be cut by 17 per cent to $17.3 billion.
Mr Willacy said this was ''pretty sizeable'', and the hit to profits could end up being greater as these were preliminary forecasts only.
Coal rivals iron ore as Australia's most valuable export, and global prices of the product have jumped by up to 55 per cent this year.
The biggest players include BHP Billiton, Rio Tinto and Xstrata, who were among a group of coal miners that last week bid $4.85 billion for Queensland's rail assets.
In opposing the tax, miners have argued it will kill the goose that is laying the golden egg, because weaker investment would undermine a key export.
Mr Willacy said the likely impact of the tax on coal exports was unclear as details were still under negotiation. However, his assessment was far less alarming than that of the resource industry lobbying campaign, which says miners will ditch Australia en masse.
''Most of the projects that were profitable before RSPT are still likely to go ahead,'' Mr Willacy said. ''Australia will still remain a competitive supplier and producer of coal.
''So I don't expect those production and export volumes to tail off significantly, but I wouldn't at all be surprised if there were some impact.
''Obviously we have the companies jumping up and down at the moment, saying they're going to can a lot of projects. In the cold light of day when the dust settles, it may well be that most of these projects remain more profitable than the next best alternative.''
Australia is the world's biggest coal exporter, helpfully located near key markets in Asia. Alternative countries for coal miners to invest in include Indonesia, China, South Africa and Russia.
One of the most contentious aspects in the mining tax debate has been the rate at which it kicks in, currently the long-term government bond yield of less than 6 per cent. Mr Willacy said this was unrealistic for projects seeking bank finance, and a 12 per cent ''uplift rate'' would make more sense.
CLANCY YEATES
Sydney Morning Herald
http://www.brisbanetimes.com.au/business/coal-miners-to-make-80b-despite-resources-rent-tax-20100530-wnfm.html
May 31, 2010
COAL miners stand to rake in earnings of more than $80 billion in the first five years of the resources ''super profits'' tax, despite having their returns trimmed by 15 per cent.
As the political brawl over the planned tax heats up, the global energy consultant Wood Mackenzie also says most coal mines planned before the tax was announced will still go ahead.
The firm's modelling found coal miners' earnings between July 2012 and 2016 would slide from $97.1 billion under the current regime to $82.3 billion with the tax. This amounts to a fall of 15 per cent.
The lead coal analyst for Australasia, Ben Willacy, said the tax would only put marginal projects at risk of failure in the short term, but the lower returns would put a question mark over projects planned for further down the track. ''Because it's a profit tax, any project that was profitable before is still profitable under the new regime,'' Mr Willacy said.
''We don't think it will make any projects unprofitable, but it will definitely distort investment decisions in the future.''
The analysis, based on 140 foreign and Australian-owned mines, also found earnings in the first full year of the tax, 2013, would be cut by 17 per cent to $17.3 billion.
Mr Willacy said this was ''pretty sizeable'', and the hit to profits could end up being greater as these were preliminary forecasts only.
Coal rivals iron ore as Australia's most valuable export, and global prices of the product have jumped by up to 55 per cent this year.
The biggest players include BHP Billiton, Rio Tinto and Xstrata, who were among a group of coal miners that last week bid $4.85 billion for Queensland's rail assets.
In opposing the tax, miners have argued it will kill the goose that is laying the golden egg, because weaker investment would undermine a key export.
Mr Willacy said the likely impact of the tax on coal exports was unclear as details were still under negotiation. However, his assessment was far less alarming than that of the resource industry lobbying campaign, which says miners will ditch Australia en masse.
''Most of the projects that were profitable before RSPT are still likely to go ahead,'' Mr Willacy said. ''Australia will still remain a competitive supplier and producer of coal.
''So I don't expect those production and export volumes to tail off significantly, but I wouldn't at all be surprised if there were some impact.
''Obviously we have the companies jumping up and down at the moment, saying they're going to can a lot of projects. In the cold light of day when the dust settles, it may well be that most of these projects remain more profitable than the next best alternative.''
Australia is the world's biggest coal exporter, helpfully located near key markets in Asia. Alternative countries for coal miners to invest in include Indonesia, China, South Africa and Russia.
One of the most contentious aspects in the mining tax debate has been the rate at which it kicks in, currently the long-term government bond yield of less than 6 per cent. Mr Willacy said this was unrealistic for projects seeking bank finance, and a 12 per cent ''uplift rate'' would make more sense.
Monday, May 17, 2010
Resource Super Profits Tax
If there were ever a single graph that showed that miners should pay more in tax, this is the one.
The graph is from the Henry tax review and is reproduced in a May 4 pre-Budget speech by Wayne Swan "Managing Prosperity In The Next Mining Boom - Beyond the 'Lucky Country'"
What it shows is that as profits have increased, Australians share of those profits have declined.
In other words, the existing royalty regime has left the Australian owners of these non-renewable resources relatively worse off over time as the profits of our majority foreign-owned mining sector have boomed.
Now this shouldn't be seen as an excuse to bash foreign investors. I don't think it matters who is earning the profits as long as a fair share is distributed to Australians via the tax system.
Mining operations require more capital than can be provided by Australian investors, so foreign investment is essential, but the government's new tax will not restrict investment once it has been bedded down.
No doubt the mining industry does not want to pay more taxes, but its self interested attempt to maintain its large profits should be taken for what it is, self-interest. The amount of disinformation put out by the mining sector is a disgrace. Spokespeople fail to acknowledge that existing royalties will be refunded and that the govt will provide support while projects are getting to the point where they will make a profit.
Today's debate on ABC Radio's World Today "Players sift through hype and hyperbole" is worth a listen.
While the form of the proposed tax should be debated, the final outcome that miners should pay more tax on their profits should be set in stone.
The graph is from the Henry tax review and is reproduced in a May 4 pre-Budget speech by Wayne Swan "Managing Prosperity In The Next Mining Boom - Beyond the 'Lucky Country'"
What it shows is that as profits have increased, Australians share of those profits have declined.
In other words, the existing royalty regime has left the Australian owners of these non-renewable resources relatively worse off over time as the profits of our majority foreign-owned mining sector have boomed.
Now this shouldn't be seen as an excuse to bash foreign investors. I don't think it matters who is earning the profits as long as a fair share is distributed to Australians via the tax system.
Mining operations require more capital than can be provided by Australian investors, so foreign investment is essential, but the government's new tax will not restrict investment once it has been bedded down.
No doubt the mining industry does not want to pay more taxes, but its self interested attempt to maintain its large profits should be taken for what it is, self-interest. The amount of disinformation put out by the mining sector is a disgrace. Spokespeople fail to acknowledge that existing royalties will be refunded and that the govt will provide support while projects are getting to the point where they will make a profit.
Today's debate on ABC Radio's World Today "Players sift through hype and hyperbole" is worth a listen.
While the form of the proposed tax should be debated, the final outcome that miners should pay more tax on their profits should be set in stone.
Sunday, May 16, 2010
Latest Trade Data
World trade suffered a severe blow from late 2008 to 2009, but the recovery has been fairly robust, contrary to the concerns that we were witnessing a possible re-run of the Great Depression. The above graph, accompanying a story by Floyd Norris in the NYT "A Surge in Trade in Some Countries, but Others Lag", shows (partly) why Australia has done better than other countries.
The figures are based on each country’s reported trade in goods, valued in dollars for the sake of consistency. The chart shows the change for each country’s trade for three-month periods ending in the month shown, compared with the same three-month period a year earlier.
A year ago, trade appeared to be collapsing around the world, in large part because of the credit crisis and the reactions of both companies and consumers to it. Even with the recent surge in trade, none of the countries shown are exporting goods at the highest rate ever, and only one — China — is importing more goods than it ever did.
In the United States, imports are rising a little faster than exports, with both growing around 20 percent in the first quarter, compared with the year-earlier period. It was the first calendar quarter to show year-over-year growth in trade since the third quarter of 2008. It was near the end of that quarter that Lehman Brothers failed and worries of financial crisis grew.
German trade is growing more slowly than in the United States, but the country continues to run large trade surpluses, with exports 21 percent higher than imports in the most recent three months available. By contrast, Japanese exports are 12 percent higher than imports, and the figure in China is just 1 percent.
Gowth in trade is generally more restrained in the so-called Gips countries of Europe — Greece, Ireland, Portugal and Spain. But their circumstances vary widely. In Ireland, both exports and imports are running lower than they were a year earlier, but the country continues to benefit from a very large trade surplus, with exports 82 percent higher than imports.
In terms of growth in trade, the figures are similar in Greece, with imports falling and exports almost level with those of a year ago. But Greece continues to face a large trade deficit, and would need a real surge in exports to cut into that deficit. For the three months through February, exports were 63 percent lower than imports.
In the United States, which faces chronic trade deficits, the margin is 31 percent, roughly half as large as the one faced by Greece.
Making Greece’s exporters competitive will be a very difficult task while the country remains in the euro zone. If it does, the likelihood is that there will be a prolonged period of deflation, with wages being reduced in an effort to cut costs.
In China and India, imports have been growing at a faster pace than exports and Australia is providing quite a few of those imports. In Japan, however, our second largest export market, imports have not recovered as much as exports. This is partly because Japan now exports so much to China. The US has seen imports and exports recover at roughly the same pace and in the most recent figures the US trade deficit increased slightly.
Most interestingly, Norris reports that China is no longer running a large trade surplus:
In fact, the monthly average surplus for the most recently reported three months — February through April — was only $683 million. For a country that imports and exports $10 billion a month, that is a negligible number.
Tuesday, May 11, 2010
Data on the Australian Economy
Every month the RBA releases a publication called A Collection of Graphs on the Australian Economy and Financial Markets. It really is quite fabulous although I think that they should release a companion document with the original data so that punters like me can construct their own graphs from the data without having to trawl through different statistical publications. When queried the RBA argued that some of the data was only available on subscription and couldn't be reproduced in its original form. Be that as it may, both the RBA and Treasury are generally very helpful when requests are made for data.
The latest edition of the collection is for May and contains data up to the 29th of April.
A couple of graphs caught my attention (sorry they didn't reproduce that well)
This first one shows China and India's amazing performance since 2000, just how badly they were affected by the collapse of world trade in 2009 and then how quickly they recovered.
This fifth graph shows the important distinction between the public and private components of foreign debt. As it clearly shows, Australia's foreign debt problem is privae in nature, although noone seemes to be that worried about it. The lifting of the super guarantee gradually to 12% will help to bosst Australian savings and make for better retirement for lots of Australians into the future.
The latest edition of the collection is for May and contains data up to the 29th of April.
A couple of graphs caught my attention (sorry they didn't reproduce that well)
This first one shows China and India's amazing performance since 2000, just how badly they were affected by the collapse of world trade in 2009 and then how quickly they recovered.
This second graph shows one of the reasons why Australia has done so well in recent times. Growth in Australia's trading partners has outpaced growth in the OECD as a whole. To get an accurate comparison we would need to do similar graphs for individual countries trading partner GDP, but obviously having extensive trade with Asia has served us well in recent times
This messy third graph shows the collapse of trade over 2008-09. This is particularly true for Japanese trade, which fell more than any other trading partner during this period of time and is the reason why it lost its position as Australai's most important export market to China, which didn't fall by quite so much.
This fourth graph shows Australia's sound fiscal position compared to most countries with only the Scandinavians in a better position among developed countries. Despite fears about Spain and its high deficit, it does not have a particularly bad overall debt position. (The deficit is the yearly figure and debt is the accumulation of deficits over time). This figure is the best one (see my earlier post Public Debt (for Nerds) for an explanation) rather than the generally misleading gross public debt figure that is usually trotted out to scare the uninformed!
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