Miners grapple with rising tax demands

From Reuters
Sunday, May 20, 2007

http://www.reuters.com/article/GlobalMiningandSteel07/idUSN2026288020070520

NEW YORK -- Bolivia's move to impose a 50 percent tax on all profit coming from the country's vast mineral wealth is the most damaging blow yet to miners looking to extract hefty returns around the world.

With high metals prices driving up mining sector earnings and some companies posting their biggest profits in nearly a decade, some governments are eyeing these windfalls jealously.

"Fifty percent would definitely be one of the highest tax rates of any of the countries in the region," said Haytham Hodaly, analyst at Salman Partners, who expects a significant amount of debate in the Bolivian parliament before it actually gets passed.

Bolivia become the latest country in Latin America to seek a larger slice, with a government official telling Reuters on Friday the country plans to hike taxes on mining companies from 35 percent currently.

"Everybody wants a piece of the pie," said Victor Lazarovici, analyst at BMO Capital Markets.

Chile and Peru have implemented more modest increases in mining royalties, according to Patricia Mohr, vice-president of economics at Scotiabank Group.

"What they are proposing in Bolivia is quite large," Mohr added.

That issue and others, from metals price forecasts, the outlook for mergers and acquisitions and the rising demands for more environmentally friendly mining operations, will be in focus on Monday when the Reuters Global Mining and Steel 2007 Summit starts.

Investors, miners and steel makers will sit down with Reuters reporters around the globe to offer their perspectives on current industry issues, and what they believe the future will hold.

The tax issue has taken center stage for many mining companies, which typically operate in foreign countries under some form of contract that stabilizes rates.

These stabilization agreements offer some protection from higher rates to companies' existing operation but could impact new projects.

"It all depends on the terms of the agreement," added Mohr.

Lazarovici said these stabilization agreements are becoming more unpopular among governments, and Congo and Zambia have indicated they would seek to overturn them.

"In many countries, the deals were struck during a period of low metal prices when expectations for earnings were low. Now these deals look less than fair," said Lazarovici.

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