June 18 (Bloomberg) -- Mining takeovers in Australia, the biggest shipper of iron ore and coal, are set to hit a five-year low this quarter after the government proposed a mining "super profit" tax.
There have been 47 announced deals valued at $914 million this quarter, compared with 89 deals worth $9.11 billion in the three months ended June 30 a year ago, according to data compiled by Bloomberg. That's on track for the smallest number of deals since the first quarter of 2006 and the lowest value since the fourth quarter 2005.
"We are certainly seeing a pullback in mining transactions," said Tim Goldsmith, global mining leader for PricewaterhouseCoopers LLP based in Melbourne. "What the announcement of the super tax has done is provide uncertainty and while companies are uncertain they tend not to transact."
The slowdown in takeovers confirms predictions by Citigroup Inc. and Xstrata Plc, which joined with BHP Billiton Ltd. and Rio Tinto Group to campaign against the 40 percent tax on mine profits. The planned levy has stalled mine investment and prompted a plunge in opinion poll support for Prime Minister Kevin Rudd who must hold an election within 10 months.
Rudd wants to introduce the tax from 2012, raising an estimated A$12 billion ($10 billion) in the first two years. It will give the nation the highest tax rate in the world for mining companies, according to the Minerals Council of Australia.
BHP rose 0.9 percent to A$39.15 at 11:01 a.m. in Sydney. Rio added 1.3 percent to A$70.98 and Fortescue Metals Group Ltd., Australia's third-largest iron ore producer, was up 1.6 percent.
Peabody Energy Corp., the biggest U.S. coal company, last month cut its takeover offer for Macarthur Coal Ltd. by 6.3 percent to A$3.8 billion, citing the tax as a reason. Macarthur rejected the bid and Peabody, which has slowed work on five expansions in Australia, said it will look elsewhere for investments.
"It's hard to outline a corporate strategy and potential targets if you are a potential acquirer if there are two end numbers for the valuation - one is with the tax and one is without the tax," Alex Passmore, head of metals and mining at Patersons Securities Ltd., said by phone from Perth. "It makes good sense that the activity has slowed down."
The value of mining takeovers declined 85 percent from the first quarter to the second quarter. Australia's benchmark index for miners hit its lowest since July on May 25.
The decline in mining takeovers in Australia may also be affected by a drop in global mergers and acquisitions. The total value of deals fell to $509.1 billion in the first quarter, from $532 billion in the final three months of 2009, the worst year for takeovers since 2003, as the Greek fiscal crisis rattled markets.
There have been 181 announced takeovers in Australia worth $13.1 billion this quarter to date, compared with 266 deals worth $18.8 billion a year ago.
The top advisers for announced Australian deals this quarter are Lazard LLC, Goldman Sachs JBWere Pty Ltd., UBS AG and JPMorgan Chase & Co. A year ago the top advisers were Goldman Sachs, Macquarie Group Ltd., Lazard and Morgan Stanley.
Australia is the second-biggest producer of nickel and alumina, and the third-biggest producer of manganese and zinc, according to data compiled by UBS AG.
To be sure, Trade Minister Simon Crean said last month the tax will result in a 6 percent to 7 percent increase in mining investment in Australia, citing economic modeling. Rudd wants the industry to move to a system that taxes profits instead of production, he said yesterday on the Australian Broadcasting Corp.'s "7:30 Report."
"It's the best thing to expand the industry long term," Rudd said.
Australia risks losing its relevance as a market for investment in global mining companies, according to Citigroup Inc., which said the nation has only three companies with a value of greater than $10 billion compared with seven in the U.K., four in the U.S., six in Canada and four in South Africa.
"Given the opportunities for global investors to look at non-Australian assets, we believe that the implementation of resource super profit tax could drive foreign interest in miners from Australia into other regions," Sydney-based Citigroup analyst Craig Sainsbury said in June 17 report. There may be consolidation between producers within Australia, he said.
Mining companies' earnings may be cut by almost a third when the tax starts in 2012, Moody's Investors Services said last month. The tax would be broadly credit negative for the sector and raise uncertainty for some companies over the short- to-medium term, Moody's said this month.
"It's a sovereign risk issue and that reflects poorly on Australia as an investment location," Paterson's Passmore said.