Tax attack: Fortescue ices $17.6 billion of new projects

Fortescue shares on the Australian Securities Exchange fell 6.7 per cent after the announcement that about US$15 billion ($17.6 billion) of projects will be suspended indefinitely.
The company said up to 30,000 existing or potential jobs will be affected.
Fortescue is delaying its US$9 billion investment at Solomon Hub, which was to eventually export 160 million tonnes of iron ore each year, and will also suspend plans for the Western Hub development, worth a further US$6 billion.
Fortescue said its existing Chichester project, where it has already spent US$4.5 billion, is still on track to expand from 55 million tonnes per annum to 95 million tonnes per annum of capacity.
The company said the mining tax would erode the cashflow it needs to expand its operations, arguing that the "economics of a leveraged project development are substantially impaired" by such a tax.
Fortescue said it was still seeking clarification about the effect the tax would have on its operations, but argues that the scheme is "poorly designed" and will hurt jobs and investment.
In a letter addressed to shareholders, the company’s chairman Herb Elliott AC described the proposed Resource Super Profit Tax (RSPT) as a “socialist style funding and tax device where the Government is now your silent partner”.
“In short, we believe the Resource Super Profits Tax is bad for every Australian. It harms the mining industry and especially Fortescue.
“It is incumbent upon us all to get ride of the RSPT to limit the damage to our country’s reputation,” said Elliott.
The letter went on to say that the RSPT was not designed by anyone with a working knowledge of project finance, and that “no bank wants to fund a failed project on the premise that 40 per cent can subsequently, perhaps, be reclaimed through tax.”
Elliott said that if the Solomon and Western Hub projects were cancelled it could impact the Australian economy for decades, describing them as two of the “world’s greatest undeveloped resource projects”.
“Fortescue in its current form would not exist if this tax had been in place at the time of its inception,” he said.
“If the tax remains as proposed certain future projects will not be possible.
“Now all our shareholders are facing a future with no immediate prospect of dividends and even the possibility of declining capital return from their investment going forward.”

Includes material sourced from Lloyd’s List Daily Commercial News – www.lloydslistdcn.com.au