New Concerns over BHP's Olympic Dam Project Could Dampen Stock
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Some concerns have been raised about whether or not a new mining tax will affect BHP Billiton's (NYSE: BHP) Olympic Dam project in Southern Australia. These worries may be entirely unwarranted, but they are certainly worth investigating a little more closely.
The government has introduced a new tax, which is being referred to as the mineral resource rent tax. Opposition Leader Tony Abbot has been the main person expressing worry. The concern is that this tax could eventually be extended to include uranium and copper. This will obviously affect the Olympic Dam project, as it chiefly mines these commodities. Abbot has called for a guarantee from the federal government that this tax will not be extended in this way, and he claims that an extension would threaten plans for expanding the project in the future.
BHP Billiton has stated that the only person who seems to think that the project is in danger is Tony Abbot, as no other commentators have come forward with concerns of this kind. BHP Billiton has accused Abbot of creating "imaginary political hurdles" to the proposed expansion of the Olympic Dam project. The company also stresses that there is nothing standing in the way of it making a decision about this expansion by the stipulated deadline.
Consequently, BHP Billiton remains unconcerned about the tax at this point in time. The company itself has not felt the need to raise the concern with the government. If the tax is extended and increased after the next election, as Abbot suggests it will be, there may be an effect on the Olympic Dam project. This does not seem to be something that the company is particularly concerned about, however, and I do not think investors should be overly concerned at the moment either.
The company has until the end of the year to make a decision regarding whether or not it will move forward with its planned expansion. In my opinion, it seems to be increasingly likely that it will. The company has bought a number of exploration licenses in recent weeks for the areas surrounding its current Olympic Dam project. In my mind, it is unlikely that it would do this if there was a strong chance that the proposed expansion was not going to occur.
In this case, I think that we should give BHP Billiton's opinion precedence over the opinions of other commentators. If the company says that there are no hurdles in its path to reaching a decision, I am inclined to believe it. After all, the company has the most to lose from these hurdles and should be most aware of the situation.
BHP's competitors are also facing their own challenges. Barrick Gold (NYSE: ABX) recently had its CEO removed from leadership, which is another sign that gold companies are doing badly and struggling to maintain coherent leadership roles. The CEO was kicked to the curb because the company did worse under his leadership than under anyone else's. That being said, Barrick did better than most other gold stocks during Aaron Regent's reign, so we may begin to see a trend across the industry where CEOs come under closer scrutiny. I feel that Regent could not have done very much to change the situation and that Barrick still shines above its competitors. As a result, I think this Barrick will be maintaining a relatively consistent stock price, only facing minor drops in the near future.
Gold company AngloGold Ashanti (NYSE: AU) is facing a significant problem at the moment. There are approximately 9,000 illegal miners invading its Obuasi mine. This could have a significant effect on the company's production in the area. Recently, a spokesperson for the company stated that the problem had reached "alarming proportions." I think this may even be an understatement. Although AngloGold Ashanti is asking for help at a national level, I feel that the damage is done and that the mining company acted too late before making an effort to address the invasion. I expect this stock to be decreasing in price as a result.
Rio Tinto (NYSE: RIO) has proposed iron-ore mining plans in Koodaideri. This is a smart move for the mining company, as the project could yield as much as 70 million metric tons on a yearly basis. In addition, it will produce this amount for a period of more than three decades. An investment here will mean great things for the mining stock. This marks the next move in Rio Tinto's expansion plan for that area of Australia. In general, this is the kind of news that I like to hear about mining stocks. This expansion will likely have a positive impact on Rio Tinto stock and help its price increase for some time to come.
Although BHP Billiton is suffering from many of the same issues as other mining stocks, I think that it is making the most of a bad situation. The Olympic Dam expansion project is getting closer to being approved, and I feel that it is almost inevitable that the project will move forward. This is all despite a number of scare tactics and concerns that have been raised and, to be honest, blown out of proportion in the media. Expansion of the dam will make a significant impact on the company's profits, and the stock will only improve as time goes forward. In general, I feel that BHP Billiton is a good option to hang on to, although future developments should be considered carefully.
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