Xstrata, BHP Billiton and Rio Tinto all warned the new-look federal government they wanted a quick resolution to their issues with the super mining tax and they have won some key concessions.

The new tax kicks in July 2012 and will only apply to mined coal and iron ore, with all other minerals excluded.

While the previous notion of a super profit was the long term bond rate (currently about 5%), the new threshold will be this rate plus 7% – effectively meaning a “super profit” is now above 12% for coal and iron ore miners.

Instead of the 40% tax rate on these super profits, a lower rate of 30% will be applied to the “taxable profit at the resource,” according to the big three.

In their joint release, the major miners said the taxable profit will be calculated in reference to the value of the commodity which is determined by its first saleable form (at the mine gate) less all costs to that point.

They said an extraction allowance equal to 25% of the otherwise taxable profit will be deductible to recognise the profit attributable to the extraction process – meaning the MRRT will only tax the resource profit.

The companies added there will be arms-length principles on all transactions before and after the first saleable form of the commodity.

The new tax will be calculated on each individual taxpayer’s direct ownership interest of any given coal or iron ore mine.

Mining companies getting low levels of resource profits, with this level suggested as $50 million per annum or lower, will be exempt from the MRRT.

For the accountants, all expenditure once the revamped tax kicks in will be immediately deductable for MRRT on an incurred basis, while non-deductable expenditure is set to be broadly in line with the existing Petroleum Resource Rent Tax.

MRRT losses can also be transferred to offset MRRT profits a coal or iron ore mining company has on its other operations involving these commodities.

The MRRT will also be an allowable deduction for income tax.

The companies updated the situation with state royalties.

“All State and Territory royalties will be creditable against the resources tax liability, but not transferrable or refundable,” they said.

“Any royalties paid and not claimed as a credit will be carried forward at the uplift rate of long-term bond rate plus 7 percent.”

The new regime will also allow companies with existing mines to claim capital depreciation from the current market value of their assets.

That’s a huge win for the big three, in particular, as it will add billions in value to their existing and older projects. The book value of Rio’s Pilbara assets, for example, was only $US11.2 billion at the end of last year, but the company had placed a market value of around $64 billion on them when the company launched its merger plans with BHP’s local operations last year.

But despite the changes mining companies will still pay a significant additional tax burden.

Treasurer Wayne Swan said the new deal will cost the government only $A1.5 billion from its forward estimates of revenue from the tax. In response to that revenue drop government will only cut the general corporate tax rate to 29% from 2013, and won’t then subsequently cut it to 28% down the track.

But it appears it will be mining juniors that bear the brunt of the concessions negotiated by the big three.

While most won’t pay any additional taxes under the new scheme, as the tax will apply only to coal and iron ore, they also won’t receive the proposed resource exploration cash rebate.

Under the resource exploration rebate, companies would have received a refundable tax offset at the company tax rate for their exploration expenditure. The rebate would have applied to the same range of Australian exploration expenses deductible under current arrangements.

According to the government’s budget projects the rebate would have returned $520 million to junior mining companies in 2011-12, rising to $680 million a year in 2013-14.

Response to changes

Herston Economics chief economist Clifford Bennett said the un-Australian resources tax had been defeated.

“The shift to a new Mineral Resource Rental Tax is a far more equitable arrangement,” he said.

“As a strong supporter of maximising the income for to the national account from the resources sector, I still feel we should not have one, and allow maximum benefit through normal taxation.

“Nevertheless the new MRRT is infinitely more workable. The headline rate is cut from 40 per cent to 30 per cent. The threshold goes up from the bond rate to the bond rate plus 7 per cent. Iron ore and coal are the focus and the tax is no longer retrospective in nature.

“The new tax will impact around 320 companies, as opposed to the previous 2,500 reach. From what was supposedly to a tax review, the system has still become more complex, but for those more capable of coping with that complexity.”

Queensland Resources Council chief executive Michael Roche said the new tax arrangements immediately restored confidence.

“I’m sure QRC members generally — small, medium and large — and the regional communities that rely on them have heaved a collective sigh of relief this morning,” he said.

“The tax proposals announced by Prime Minister Julia Gillard ensure that Australia’s resource taxation arrangements remain globally competitive, which is good news for miners, investors and the one in eight Queenslanders whose jobs rely on the resources sector.

”It also goes some way to restoring Australia’s reputation in the eyes of global investors.”

But the Queensland mining magnate Palmer, who is currently in Germany, said the MRRT was merely window dressing and the tax was still a concern for overseas investors.

“The new prime minister has been very quick to come up with this sweetheart deal but it remains unacceptable,” he said.

“New taxes of any scale don’t help create jobs or stimulate overseas investment in Australia’s resource sector and this is still a large tax.

“The prime minister also promised to negotiate with the wider industry but only the big three companies were involved in the process of reaching the new deal and these are companies with headquarters offshore and Australians are not the majority shareholders.”

Palmer noted there was still a sovereign risk perception of Australia’s mining scene.

“This whole debacle has caused irreversible damage to the Australian mining industry which will take many years to regain its former status as investment friendly to international parties.

“The Labor factional warlords may have stabbed Kevin Rudd in the back but his co-conspirators in this tax fiasco, namely the Treasurer Wayne Swan and the new Prime Minister Julia Gillard, remain at large.

“Bring on the federal election and give the Australian people the opportunity to have their say on this tax.”

Consultation group formed

There are still plenty of details to be thrashed out before legislation is ready to be introduced.

While the government didn’t announce any changes to the proposed legislative timetable for the tax today, it has established a more formal consultation process to thrash out the remaining details.

Gillard and Swan are being careful to ensure they don’t repeat their previous mistakes and again leave themselves open to accusations they are failing to properly consult with the industry.

According to Gillard the government will establish a “policy transition group” as part of the deal, to be chaired by former BHP Billiton chairman Don Argus.