GBG Gindalbie Metals Ltd

The Australian Government has made progress in talks with the nation's three biggest miners on a compromise on a controversial new mining tax and is likely to make an announcement Friday, a person familiar with the situation said.

A deal would bring to an end a lengthy and bitter battle between the government and the major players in the industry over the proposed 40% Resource Super Profits Tax and would be a big win for new Prime Minister Julia Gillard, paving the way for her to take advantage of a recent lift in voter polls and call an election soon.

The miners have waged a public campaign against the tax, spending millions on a series of anti-government advertisements, stoking public unease about the potential impact on jobs and investment in the mining industry. That unease was a factor in the recent dumping by the ruling Labor party of Kevin Rudd as prime minister.

Tony Abbott, leader of the main opposition Liberal-National coalition, has vowed to scrap the tax if he wins the election. If miners agree to a compromise, that could pressure Abbott to back the deal to end uncertainty for the sector.

However some miners including Fortescue Metals Group Ltd. (FMG.AU) say they have been excluded from a process dominated by the biggest miners, who may not be representing their best interests.

BHP Billiton Ltd. (BHP.AU) Chief Executive Marius Kloppers, Rio Tinto Ltd. (RIO.AU) Managing Director Australia David Peever and Xstrata Plc (XTA.LN) Coal Chief Executive Peter Freyberg met with Australia's Treasurer Wayne Swan and Resources Minister Martin Ferguson in Canberra for a second day Thursday to hammer out a compromise on the tax, according to the person familiar with the situation. A government spokeswoman confirmed talks had taken place, adding "the government is committed to a speedy outcome with regard to the" tax, but would give no other details.

The Age newspaper, without citing sources, reported on its website that the government had agreed to lift the rate at which the tax kicked in, to exclude nickel operations from the new regime and had offered generous concessions on the treatment of depreciation of assets.

Under the government's original proposal, the tax would kick in when a project's rate of return reached the level of the long-term bond yield, but The Age said this had now been raised to the long-term bond yield plus 7%, taking it to about 12%.

The newspaper also said the government had agreed to let miners inject existing assets into the tax regime at market value, allowing them to claim large deductions for depreciation.

Morgan Stanley analyst Craig Campbell said such a concession would be a big win for miners with older assets that had already been depreciated, like BHP and Rio Tinto's giant iron ore operations in the Pilbara region of Western Australia state.

It would also benefit miners like Fortescue Metals with newer mines whose market value had surged ahead of book value, as prices for commodities like iron ore and metallurgical coal had soared.

The Age report said it was not clear if the government had agreed to alter the 40% rate of the tax, but that it was believed it had also given ground on this front.

A person familiar with the government's plans told Dow Jones Newswires that Gillard would return to Canberra Thursday evening for meetings on the tax.

BHP declined to comment, while Rio was not available for comment.

Some Miners Unhappy With Negotiation Process

While analysts said resolution on the tax would remove the uncertainty that had been hovering over the market, some miners are unhappy.

Fortescue, which had played a role in attempts to broker a deal under Rudd, said it had not been involved in any talks this week.

"FMG would be opposed to the discussions presently being held in Canberra with select representatives of multi-national mining companies leading to a formal government position or policy," a spokesman for the company said.

Gindalbie Metals Ltd. (GBG.AU) Chief Executive Garret Dixon said the government should engage the entire industry. "If there are selective deals (being made) I'll be looking for us to have our turn," he said.

The country's peak mining lobby group, the Minerals Council of Australia, which counts larger and small miners among its members and has been a vocal critic of the original tax, did not return calls.

Shares in the big miners were supported in intraday trade Thursday. BHP ended down 1.4% at A$37.11, having been at A$36.76 immediately before the Age report, while Rio ended 2.3% lower at A$65.10 after trading at A$64.20 just prior to the report.

Nickel miners staged a turnaround on hopes they would be excluded from the revised tax regime. Minara Resources Ltd. (MRE.AU) ended up 4.6% while Western Areas NL (WSA.AU) rose 1.3% and Mincor (MCR.AU) climbed 5.8%.

Meanwhile, the Prime Minister's office issued a statement on a news conference that will be held at 2230 GMT in Canberra. The statement didn't specify an agenda.

-By Alex Wilson, Dow Jones Newswires: 613-9292-2094; alex.wilson@dowjones.com

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