Stock market backs mining

Published in Geelong Advertiser, June 2010 by Rebecca LeMay

Australian mining stocks jumped amid signs incoming Prime Minister Julia Gillard will be more open to tweaking the resources super profits tax (RSPT) than her predecessor Kevin Rudd.

At 12.27pm yesterday, Fortescue Metals Group was up 11 cents, or 2.48 per cent, at $4.54 after reaching a high of $4.63 in earlier trade.

Fortescue was among the most sold-off stocks when the RSPT was announced after saying the RSPT had forced it to shelve two iron ore projects worth about $17 billion because financiers did not value a 40 per cent rebate on losses.

Rio Tinto was up $1.29, or 1.83 per cent, at $71.83 at 12.28 AEST after reaching an earlier high of $72.48, while BHP Billiton had risen 63 cents, or 1.61 per cent, to $39.77.

Ms Gillard, who ascended to the prime ministership after Mr Rudd declined to contest a leadership ballot yesterday morning, told her first press conference as parliamentary leader that she would throw the doors open to the mining sector.

The mining sector needed to be negotiated with over the new tax, not just consulted, Ms Gillard said.

EL&C Baillieu Stockbroking director Richard Morrow said investors initially responded positively to the new leadership, but there had been a small amount of profit taking among mining stocks around noon.

"There was an initial knee-jerk uplift in the market in the resources sector right at the start of play and then everyone held their breath until the new prime minister made her first statements," Mr Morrow said.

"The noises that are coming out of that sector and both Ms Gillard and her deputy are very encouraging for the mining companies.

"It involves both parties with an act of good faith in cancelling their public slanging match - that looks to have taken place."

Ms Gillard said the Federal Government would cease its RSPT advertising campaign if the mining sector did the same.

Mr Morrow said the leadership change would likely have a big impact on the Australian dollar.

"Just keep your eye on the currency," he said.

"That's the way the foreigners will vote. They voted with their feet and ran out the door when the tax was introduced and when some more definitive news on that front comes out, they will also vote with their feet, come back in."

Wealth Within chief analyst Dale Gillham said Mr Rudd's poor handling of the tax was "the nail in the coffin" for his leadership.

"Quite frankly Julia Gillard will have about two months to show she can do what is right for the Australian people," Mr Gillham said.

"If she does not perform exceptionally well she may very well be a very short term prime minister.

"If Julia Gillard moves quickly to resolve the issues around the resource rent tax, then maybe this will work positively towards putting more confidence back into our market and we may see it finally start to gain positive momentum.

"In saying that I believe our market will continue to be volatile over the next six months regardless of who is prime minister, and they will have to deal with many unforeseen issues that could severely challenge the government in similar fashion as to what occurred with the GFC (global financial crisis)."

Among the smaller miners at 12.41 AEST, Atlas Iron was up nine cents, or 4.21 per cent, at $2.23 and Gindalbie Metals had gained five cents, or 4.24 per cent, to $1.23.