Aussie Mining Stocks Bashed; Gov't Defends Tax

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". . .investors in Australian resource companies will vomit into their cornflakes when they read this."

Australian mining shares tumbled on Monday after the government slapped a 40% tax on mining profits to fund a boost to workers' incomes in an election year, sparking warnings that huge new investments could be lost.

Shares in mining giants Rio Tinto and BHP Billiton fell sharply on the new tax.

The center-left government, which has made the tax a centerpiece of its re-election agenda this year, sought to defend the proposal against miners' assertions that it would force them to review A$100 billion in projects in one region alone.

Prime Minister Kevin Rudd, in a pitch likely to strike a chord with voters, said Australians had been shortchanged during a 10-year resources boom in which profits soared by A$80 billion, while only A$9 billion extra flowed into national coffers.

Under the tax reform package unveiled on Sunday, workers will get effective wage rises as the new mining tax will help pay for a cut in corporate tax and a requirement for employers to raise the amount they pay into workers' pension funds.

Western Australia, the largest mining state, warned of investment and job losses from the tax, without quantifying them, while BHP Billiton and Rio Tinto and a third global miner, Xstrata, said investment could be jeopardized.

Investors sold off mining stocks, sending the sector sub-index down 2.5% in a wider market off just 0.5%. The only mining stocks to gain were those working offshore, with shares in PanAust, which focuses on Southeast Asia, up 1% in a sea of red.

"There'll be a huge number of investors in Australian resource companies who will vomit into their cornflakes when they read this," said Richard Morrow, stock broking director at E.L. & C. Baillieu.

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