LEISURE PROP­ERTY

Suf­fers when things go wrong, like now

Finweek English Edition - - Front Page - Cents BREN­DAN RYAN

A PANIC OF SORTS hit the re­sources eq­uity mar­kets last week when two un­re­lated sets of bad news com­bined to knock back the shares of ma­jor min­ing groups BHP Bil­li­ton, Xs­trata and Rio Tinto. The bad news con­sisted of the an­nounce­ment by the Aus­tralian govern­ment of its in­ten­tion to push for a wind­fall “su­per tax” on min­ing com­pa­nies while the re­lease of some dis­ap­point­ing eco­nomic num­bers from China trig­gered re­newed wor­ries about the global eco­nomic re­cov­ery.

BHP Bil­li­ton shares tum­bled 18% on both the London Stock Ex­change and the JSE, where they fell from a 12-month high of R259 to around R216. Xs­trata and Rio Tinto took sim­i­lar thumps. But SA in­vestors can only get at those stocks us­ing their for­eign in­vest­ment al­lowances, while they can buy BHP Bil­li­ton us­ing rand.

I think in­vestors have been pre­sented with a buy­ing op­por­tu­nity in BHP Bil­li­ton, which is the world’s largest di­ver­si­fied re­sources group and has put in a su­perb per­for­mance over the past five years. Its cur­rent share price is still al­most five times up on what it was back in 2005.

But be­fore buy­ing the stock you need to ac­cept two fun­da­men­tal as­sump­tions. The first is that the global econ­omy is re­cov­er­ing – al­beit slowly – and the com­mod­ity “su­per-cy­cle” re­mains in­tact. The sec­ond is that Aus­tralia’s pro­posed su­per tax doesn’t get en­acted in the dra­co­nian form pro­posed by Kevin Rudd’s govern­ment. The pro­posed tax still has to go through the full leg­isla­tive sys­tem in Aus­tralia be­fore it’s ap­proved and im­ple­mented.

There’s been mas­sive op­po­si­tion to it across the board in Aus­tralia, from the min­ing in­dus­try as well as the main op­po­si­tion par­ties. To use the ver­nac­u­lar: feel­ing is that Rudd “has a few roos loose in the top pad­dock”. There must be a good chance it will get toned down or even scrapped should Rudd lose the next elec­tion.

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