Australian iron ore miner Fortescue Metals Group threatened on Wednesday to abandon $15 billion in new projects unless the government drops or substantially waters down a plan for a new mining tax. China-backed Fortescue, Australia's third-largest exporter of the steel-making raw material, said the tax would make it impossible to arrange financing for its $9 billion Solomon Hub project and its $6 billion Western Hub development.
Both projects were now on hold pending the outcome of a fierce lobbying campaign by miners to persuade the centre-left government to either reverse the tax or at least make major changes to it. Shares in Fortescue, which ranks behind local iron ore giants Rio Tinto and BHP Billiton, slumped on the announcement, which fund managers and mining analysts described as a wake-up call for the government.
"It casts a shadow over the whole industry," fund manager Peter Chilton of Constellation Capital Management said of the proposed 40 percent tax, due to be introduced in 2012. Fortescue said bankers were unwilling to "step up to the plate" for its two new projects in the iron ore-rich Pilbara region of west Australia, noting the tax would hit profits before financing costs, leaving less room for debt repayments. CEO Andrew Forrest, an ex-stockbroker and once Australia's richest man through his majority stake in Fortescue, said this meant local miners would need to rely more on offshore equity capital, especially from China.
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