Peabody, Xstrata lead fallout from Australia mining tax

(Reuters) - Several global mining giants scaled back or warned over their Australian investment plans on Monday as the backlash against the government's "super profits" tax intensified.

Xstrata PLC suspended copper exploration in Australia, coal giant Peabody Energy cut its offer price for Macarthur Coal and BHP Billiton warned that approving key expansion projects would be difficult given the new tax.

Until now, mining companies like industry behemoths BHP Billiton and Rio Tinto had only threatened to take investments off the table if Prime Minister Kevin Rudd proceeded with his plan to boost corporate mining taxes to 40 percent, effective in 2012.

But on Monday, some of the warning became reality as Peabody cut its offer for Macarthur to $3.4 billion from $3.6 billion, while Xstrata put A$30 million in exploration spending in Queensland state on hold as it seeks to clarify what the tax means.

"Exploration activities are high risk and, while the targets we had identified are prospective, the proposed tax has introduced great uncertainty about the potential impact on the economics of developing resources into viable operations in Australia," Steve de Kruijff, Chief Operating Officer Xstrata Copper North Queensland, said.

De Kruijff said it would also change the relative economics of the Australian prospects compared with exploration programs that Xstrata is pursuing in other parts of the world.

A spokeswoman later told Reuters the action would not curtail production in Australia, where Xstrata produces about 200,000 tonnes per year.

"It's really about future additional resources," the Xstrata spokeswoman said.

The actions by both companies follow a weekend warning from BHP Chief Executive Marius Kloppers that it would be difficult to approve billions of dollars worth of projects on BHP's drawing board until it had a better handle on the complex tax, which was revealed last week.

Kloppers warned that the tax could jeopardize expansion in iron ore mining along with a push to more than triple the size of its Olympic Dam copper and uranium mine, which analysts estimate would cost $20 billion.

While no investment decisions on Australian projects were imminent, Kloppers said it means BHP will be forced to pay twice as much tax in Australia than it paid in Canada, Brazil, China and other resource-heavy countries.

"The uncertainty is in place, it would be very difficult to approve any of those projects," Kloppers told Australian Broadcasting Corp. television on Sunday.

The final shape of the tax is under negotiation and the impact will only be known once it is approved by the Australian parliament.

Mining companies in Australia have been racing to boost production for everything from iron ore and coal to copper and bauxite to feed the recovery in global industrial markets. Iron ore sells for more than twice last year's price and coal for steel making is up 55 percent.

"There is a boom going on in commodities and now is not the time to be cutting back," said Eagle Mining Research analyst Keith Goode.

Before a meeting with mining executives last week, Rudd was presented with a pair of boxing gloves by Andrew Forrest, chief executive of iron ore miner Fortescue Metals Group, who has labeled the tax a "40 percent nationalization" of the mining industry.

BHP acquired the Olympic Dam mine, the world's fourth-largest copper deposit, in 2005 and immediately set out to increase output.

"Obviously, we are getting very close to the end of that process... this new tax proposal does upset the apple cart there a little bit," Kloppers said.

Olympic Dam currently has the capacity to yield 200,000 tonnes of copper and 4,000 tonnes of uranium each year, with the expansion aimed at boosting output to 730,000 tonnes of copper and 19,000 tonnes of uranium.

Macarthur's shares dropped 1.5 percent at A$13.48 after Peabody said it was cutting its offer price, bucking an uptrend in the wider market.

"There is still some doubt as to whether the offer's going to be successful," said Neil Boyd-Clark, portfolio manager at Fortis Investment Partners.

(Editing by Michael Urquhart)