New Australia PM pledges to listen to miners on tax

SYDNEY, June 24 (Reuters) - Critics of Australia's 40 percent mining tax proposed under former Prime Minister Kevin Rudd may see some of its sting removed after the country's new leader Julia Gillard signalled a willingness to negotiate a compromise.

The tax has met harsh opposition from miners, who have threatened to cancel $20 billion of investments in Australia.

Gillard offered to "open the doors" of the government to negotiation within an hour of assuming the Labor party's leadership after Rudd quit ahead of a leadership vote early on Thursday. [ID:nSGE65M0JY]

"It's a genuine offer - the door of this government is open....I'm asking the mining industry to open it's mind," Gillard told reporters.

Given the so-called "super profits" mining tax was clearly a key factor in the deteriorating approvals ratings for Rudd and the Labor party, Gillard will grasp the opportunity to try to mend fences with big miners, analysts say.

Encouraged by hopes for a compromise, mining stocks outperformed a flat broader market, with BHP Billiton (BHP.AX) (BLT.L) gaining 1.3 percent, Rio Tinto (RIO.AX) (RIO.L) up 1.7 percent and Fortescue Metals Group (FMG.AX) up 2.5 percent. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For snap analyses, click on [ID:nSGE65N09N] [ID:nSGE65N08D]

Q+A on Gillard [ID:nSGE65N04M]

Gillard Newsmaker [ID:nSGE65N048]

Gillard press conference link.reuters.com/mer73m

Mark Taylor at Morningstar on Gillard's plans for mining tax. link.reuters.com/xyx73m ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

NAIL IN COFFIN

"There is no doubt the controversy over the super profits mining tax was what drove the final nail into Rudd's political coffin," said DJ Carmichael & Co mining analyst James Wilson. "It's a lesson the Labor party appears to have learned, that it must engage with the mining industry over this tax."

Gillard is expected to seek consensus within her left-of-centre party to exclude at least one of the most controversial components of the impost -- its application to projects already in the pipeline, such as iron ore and copper mine expansions, and could look at other contentious areas.

These include reducing the new effective tax rate, below the 40 percent headline figure and doubling the threshold when miners start paying the tax to 12 percent from 6 percent.

This would bring Australia's tax regime for mining in line with other developed resource-rich countries such as Canada and Brazil, and remove a central criticism that Australia is out of sync with the rest of the world and gouging the sector. "Given how poorly negotiations with industry bodies appear to have been going, Gillard will likely dilute the RSPT (resource super profits tax) in some shape or form," said JP Morgan analyst Helen Kevens.

Gillard may also be more open than Rudd to excluding miners of low-value resources, such as sand, clay and limestone, from the levy and tax iron ore, coal, nickel and other commodities at face value before they are sold rather than after.

This would leave sector giants BHP Billiton, Rio Tinto and Xstrata (XTA.L) shouldering the lion's share of the tax burden

Xstrata has already put $5.4 billion in new coal and copper projects on hold, while Rio is reviewing all its capital spending after placing Australia at the top of its sovereign risk list.

BHP ENCOURAGED

BHP and Rio Tinto each said they were "encouraged" by Gillard's comments and BHP also said it would suspend an anti-tax advertising campaign.

Not all miners welcomed Gillard's pledge to compromise on the tax.

The 140 member-strong Association of Mining and Exploration Companies, representing mainly small and mid-capped miners, wants the new prime minister to dump the proposal outright.

"The first thing that the prime minister should do is to announce an immediate and complete withdrawal of the proposed toxic mining tax in order to restore Australias reputation as a safe, reliable and financially attractive place in which to invest," the association's chief executive, Simon Bennison said.

Gillard had excluded herself from any direct contact with mining executives since the tax was announced on May 2 and therefore avoided much of the criticism and cries of incompetence levelled at Rudd by the nation's most powerful mining bosses.

This provides Gillard, a lawyer, a chance to take a fresh look at the tax and engineer a healing period ahead of elections.

"This will avoid the potential of the previous strategy that may have derailed the strength of our economy," said Andrew "Twiggy" Forrest, chief executive of iron ore miner Fortescue Metals Group.

(Editing by Ed Davies)