In a report, Facing an uncertain future: government intervention threatens the global mining sector, it revealed government intervention was causing high levels of uncertainty among both companies and investors.

This should ring alarm bells for Australia’s government as mining was expected to generate 7% of Australia’s gross domestic product in the 2011 financial year, the report said.

“Intervention is having a real impact on the Australian resource sector,” Grant Thornton national head of resource and energy Scott Griffin said.

“We are expecting to see projects delayed and investor confidence has already been eroded.

“Resource projects are long-term in nature and require a stable regulatory framework.”

Griffin said the government needed to take action to remove the uncertainty and position Australia as an attractive country for long-term investment in the resources sector.

Grant Thornton recently undertook research to identify issues faced by junior mining and exploration companies in Australia.

“More than 85% of respondents said that the Australian government’s Mining Resource Rent Tax legislation is having an unsettling impact on the local resource sector,” Griffin said.

Grant Thornton International global leader for mining Mark Zastre asked the question, “How can companies plan and operate successfully when governments keep chopping and changing rules?”

Zastre said the mining companies he had spoken to were very concerned about the threat posed by government intervention.

Grant Thornton research revealed that almost 80% of junior miners would be looking for offshore funds to support their exploration activities.

“[Mining companies] are finding it increasingly difficult to get funding, as the uncertainty and risk of intervention is putting investors off,” Zastre said.

“China’s Iron and Steel Association chief recently said that Chinese steelmakers will not be able to accept rising costs from Australian iron ore mining tax, as steel prices will reach a ceiling and downstream users won’t absorb rising costs.”

This could disrupt supply chains, Zastre said, and have a knock-on effect to the Australian economy.

Governments view mining as a thriving, profitable income source and as a way to boost revenue, he said.

“In Australia the federal government’s proposed new tax is taking another slice of the pie in addition to existing state royalties, leaving some mining projects in limbo as to whether they have sufficient commercial return.”