Could the West Australian election result see the BHP Billiton-bid for Rio Tinto scuppered?
It’s already under pressure from the regulators at the European Commission, but a far greater danger could be the election of what might be a Liberal party Government in the state.
It’s still too close to call: the sitting ALP Government could be returned or we could have a hung parliament, but there’s every chance the Liberals, led by Colin Barnett, could become the government.
But Labor Premier Alan Carpenter looks a goner, so Colin Barnett is highly likely to be the next West Australian premier.
But BHP watchers should take note; he’s against the BHP bid if you can believe this interview he gave to The Australian’ during the election campaign.
This is what he said about the proposed merger between BHP and Rio Tinto. The comments are surprising, coming from a Liberal Party member, but after the performance of Brendan Nelson recently, anything goes it seems on the conservative side of politics.
The key quotes from Mr Barnett are:
"It (the merger proposal) is not healthy."
"The state government couldn’t stop them merging at a corporate level,” Mr Barnett said. "But certainly the state government could have a big role in saying what happens in terms of their physical operations – not to frustrate, but as a player at the table.”
The Opposition leader said that there would be a clear cost to the state if more than half its mining and petroleum industry ended up in the hands of one company.
"If they want to do that (merge), then other things would come into play,” he said.
"For example, why would they continue to receive a concessional royalty rate? It would be time to get rid of that. The current rates fall well below the normal rates for mining royalties. It would be one of the issues we would have to discuss.”
BHP shares fell 11% last week as oil and copper prices were hammered lower. They ended at $37 and Rio Tinto shares had a 14% retreat to $110.80.
The weakness Thursday and Friday was related to the falling commodity prices, but did the smart managers spot the news of the possible change of Government in the media on both days and take the opportunity to sell? Our market was only down just over 5% last week: oil and copper prices were not down as much as BHP or Rio.
The EC put the consideration of BHP’s offer on hold while BHP and Rio argue about providing more information sought by the EC, so that had a part to play in the weakness of both shares.
Complicating matters in WA however could be the National Party, which may or may not form a coalition. Late yesterday it was looking unlikely, but this is politics, so anything goes.
The WA National Party leader Brendan Grylls said yesterday his party will not form a coalition with Labor or the Liberals and is sticking by his ‘royalties for regions’ demand.
The National Party has emerged as the kingmakers in WA politics and they have a non-negotiable demand to direct an additional $700 million a year in mining revenues into regional areas.
The ALP and Liberals currently hold 24 seats and need the support of the Nationals’ four or five seats to form government.
Mr Grylls met Premier Alan Carpenter yesterday afternoon and with Opposition Leader Colin Barnett today.
AAP reported that Mr Grylls said the Nationals would not enter into a formal coalition or have a joint party room with either major party.
"We are not seeking a coalition, we will not be having a joint party room," Mr Grylls said.
So that’s another factor in WA where the increased Federal tax on condensate produced by Woodside was a factor in the poll as Woodside threatened to put up the cost of gas to people living in the state.
Part of the higher tax was a payment to WA by Canberra of cash to compensate for lower taxes received under the Resource Rent Tax.
That still could be an issue if Mr Barnett is as anti-concessional royalty rates for mining companies as he seems.
After all, Woodside has got a big bonus from the higher oil prices this year which have also boosted condensate prices, so it is making windfall profits. Woodside’s tax is concessional.
The Queensland Government has recently lifted coal royalties from 7% to 10% for all revenues generated above $100 a tonne.
Compare that with Western Australia which only levies a flat 3.75% royalty on iron-ore mining. As a combined BHP and Rio Tinto plan to mine and export 350 million tonnes of iron-ore production in the Pilbara next year, Mr Barnett probably has a point with WA voters.
At current prices for iron ore (around $145 a tonne, averaged over fines and various grades of lump), a 1% increase in the royalty would generate $600 million a year.
Put 2 cents on and that $1.2 billion extra is enough to pay what the National Party wants and have half a billion left over to meet some of the election promises (such as $1 billion for a rail line in Perth!).
But on the other hand, the uranium exploration and mining industry might be encouraged if there’s a new Liberal Party Government. But there’s no use in finding the stuff, it has to be exported and that’s a Federal matter.
