Tales of Concensus

None of those two developments can be considered happy endings, but they’re certainly good compromises. On our plate today: two things. First, with a new PM and a new attitude, Australia seemed to have agreed on the shape of its upcoming new tax on super profits. Second, Vale Inco has finally reached a deal with its workers, after roughly a year-long labour conflict.

Australia New Super Profit Tax

Australia’s new Prime Minister Julia Gillard has agreed to make concessions on the parameters of the new mining tax.  A week after taking over Kevin Rudd as Prime Minister, she agreed to cut the tax rate of the new mining tax to 30% from 40% as well as to increase the threshold at which the rate will kick in. The 10-year government bond rate (currently 5%), plus 7% will be used as threshold. Moreover the tax will apply only on profits from iron ore and coal extraction. As a result the tax will affect only 320 companies instead of 2,500 under the previous version of the tax.  The projects will also be subject to a 25 per cent extraction allowance which will reduce the miners’ taxable income.

 Following the implementation of the last tax reform proposed by the Henry Review, Australia general corporate income tax rate was to be lowered to 28% from 30%. Considering the tax rate applicable to those super profits is only 2% higher than the general rate, I’m unsure whether this change of course can be called a compromise (nor proper tax policy). It’s full on back-pedalling (for re-election’s sake).  The miners call the new version of the tax a “reasonable framework”. 

Greens in the Australian Parliament have however signalled last week that they would not compromise on the rate and that the 40% rate would have to stay no matter what.  The saga may not be over yet.

Vale Inco has an Agreement with its Workers

A tentative five-year labour contract agreement has been reached by Vale Inco and employees of multiple Canadian operations who went on strike last summer over their dissatisfaction with the company’s offer regarding pensions and bonuses tied to the price of nickel. The Union of the Sudbury workers still has to vote on the proposed contract. Agreement by the Sudbury Union would likely lead to a settlement at Vale’s Voisey’s Bay operations in Newfoundland.

Sudbury and Voisey’s Bay operations collectively account for 4 per cent of the global nickel supply. The strike has thus been a major driver in the physical market in the past months. Andy Home, columnist for Reuters’ Metals Insider, suggested that the impact of a return to production to Vale Inco operations would take some time before being felt in the markets. Once the output of operations is increased, roughly 140, 000 tonnes of annualised nickel supply will hit the market. Home expects oversupply around the fourth quarter.