Fidelity Australia says mine tax raises uncertainty

MELBOURNE (Reuters) - The head of Fidelity's top Australian equities fund says a proposed tax on mining "super profits" will be a negative for the industry, and it is already hurting smaller miners' ability to raise funds.

Paul Taylor, portfolio manager of the Fidelity Australian Equities Fund with A$1.6 billion ($1.4 billion) in funds under management, said the proposed tax was "incredibly complex." The fund is a unit of Boston-based mutual fund giant Fidelity Investments.

"Even the companies aren't sure what the end result will be. If it gets implemented, it would be negative for the mining companies, but there are still a lot of question marks about how it gets executed," Taylor told Reuters in an interview.

He said that for small and mid-cap miners, the uncertainty over the tax was already hurting their ability to secure financing.

Wesfarmers, a coal-to-retail conglomerate, is the latest company to warn of sovereign risk surrounding the tax and saying it could threaten the group's dividends.

More than $20 billion of new resource investment in Australia has been put on hold by global miners due to the tax, expected to start in 2012.

Taylor said that recent market volatility and falls in miners' share prices had created a buying opportunity.

The fund's fact sheet shows its holding of Rio Tinto shares increased to 6.2 percent of total assets in May from 6.1 percent in April, while its holding of BHP Billiton shares rose to 9.4 percent from 8.7 percent.

Fidelity's Australian Equities Fund -- one of the top rated by research houses Morningstar, S&P and Van Eyk -- has outperformed its benchmark, the S&P/ASX 200 over short and long-term periods since its inception in 2003.

In the year to May, the fund returned 26.5 percent compared with the index's 20.8 percent, with around 40 stocks in the portfolio.

Taylor said financial markets are likely to remain jittery this year as worries about European debt and a slowdown in Chinese growth weighed on the outlook for the global recovery.

"We've had the cyclical rebound, now you have to focus much more on structural growth opportunities," said Taylor, who uses a bottom-up, stock-picking approach.

Among the companies offering structural growth, regardless of the macroeconomic backdrop, Taylor favors online job advertiser Seek, online travel site Wotif, healthcare firms including ResMed for its sleep apnea treatments and iron ore producers.

Fidelity's largest overweight positions include:

* Seek Ltd: "Internet companies that are penetrating into traditional areas are going to continue to grow substantially, even if things start to slow down, because they've got this huge market penetration opportunity."

* Rio Tinto: "You want to own the companies that own the long-life, low-cost mines. If they are taking iron ore out of the ground at A$20 or A$25 dollars a tonne, even if prices come back (from $140) to $60 a tonne, they are still in a fantastic position to grow production."

* Commonwealth Bank of Australia: "Commonwealth is positioned extremely well, it probably has the best balance sheet (among the Big Four banks) in terms of deposit base and is the most funded from domestic sources."

* Wesfarmers: "Consumers want better value for money, they are buying more home brands and that really benefits companies like Wesfarmers that are doing private labels themselves. Whether it is Coles, Kmart or Bunnings, often they earn higher profits or margins on those products as well."

* Upcoming Australian IPOs: Taylor said Fidelity will take a look at planned IPOs including German construction group Bilfinger Berger's $1 billion IPO of Australian unit Valemus and state-owned rail group QR National's A$3 billion IPO, but much will depend on how they are priced versus competitors.

(Reporting by Victoria Thieberger; editing by Dhara Ranasinghe)