Australia PM Avoids Mine Tax Talk In Key Marginal Electorate

Australia's Prime Minister Julia Gillard gave a campaign stump speech to miners in resource-rich Queensland state Tuesday without once mentioning her center-left Labor party's controversial mining-profits tax proposal.

The tax is a pivotal issue that could help decide the outcome of Saturday's general election, particularly in line ball electorates like this one, the central Queensland seat of Flynn, held by Labor MP Chris Trevor with a margin of a little over 2.0%. Coal mining is the life blood of the electorate's large inland town of Emerald, around 650 kilometers north of the state capital Brisbane.

Voter polls indicate Saturday's election could be a photo finish, especially in the key swing states of Queensland and New South Wales. Gillard blitzed marginal seats in northern Queensland Tuesday, including Herbert, Dawson and Flynn.

The initial proposal for a 40% tax on mining profits contributed to the June ouster of former Prime Minister Kevin Rudd in a Labor party coup, amid fears he was damaging the party's electoral chances.

The revised proposal--softening the headline rate of the tax to 30% from 40% and excluding all minerals except iron ore and coal--was notably absent in a speech by his successor, Gillard, to around 40 dusty coal miners who downed tools at the Gregory-Crinum mine near Emerald, for a lunch time barbecue of chicken, coleslaw and steak sandwiches Tuesday.

The mine is a 50:50 joint venture between BHP Billiton Ltd. (BHP.AU) and Mitsubishi Development Pty Ltd, a wholly-owned unit of Mitsubishi Corporation (8058.TO).

The audience seemed a little nonplussed by Gillard's arrival--and it was an awkward backdrop for the well-dressed prime minister--though the miners were polite listeners and there were no interruptions during her speech.

While avoiding a mention of the proposed tax, Gillard did acknowledge the sector's contribution to Australia's A$1.3 trillion economy. Australia was one of few developed nations to avoid a recession last year due partly to ongoing demand from developing countries like China for the country's vast natural resources.

"Core to everything in this campaign is keeping the economy strong," Gillard told the gathering.

"You obviously work in a great industry in a prosperous part of the country. We want to make sure our economy stays strong and keeps giving the benefits of work to people right around the nation," she added.

The prime minister later brushed off suggestions from reporters she was embarrassed by the tax proposal--of which Rudd and Treasurer Wayne Swan were the chief initial architects.

Gillard noted she had visited the mine in May to discuss the mining tax. "Of course my economic plan includes the minerals resource rent tax," she added.

Gillard thrashed out the compromise deal on the tax with the country's three biggest miners, BHP Billiton, Rio Tinto Ltd. (RIO.AU) and Xstrata PLC (XTA.LN) a week after Rudd was deposed.

But many smaller miners are unhappy with the deal, arguing the amended plan favors the big three. They argue it has damaged Australia's reputation as an investment destination and is hampering their ability to raise capital. Led by the Association of Mining and Exploration Companies, they are mounting a three-week campaign against it in the midst of the election campaign.

New Hope Corp. Ltd. (NHC.AU), Australia's fifth-biggest independent coal miner by production, earlier Tuesday urged its Australia shareholders to consider the impact of the proposed tax in the Aug. 21 ballot.

The main opposition Liberal-National coalition of center-right parties has vowed to scrap the tax, warning it will "choke the golden goose" that spared Australia from recession. The coalition has also said it will provide A$418 million of exploration rebates for smaller miners if it wins power.

In a letter to shareholders, New Hope Corp. warned long-term shareholder returns will be reduced by more than 10% as a result of the new tax.

"I ask that you consider the potential impact of the current government's proposed mineral resource rent tax when casting your vote in the forthcoming election," Chairman Robert Millner wrote.

New Hope operates mainly thermal coal mines in the southeast of Queensland.

In a separate letter to shareholders released late Monday in his capacity as chairman of investment company Washington H. Soul Pattinson & Co. Ltd. (SOL.AU), Millner also said the tax could impact future earnings of that company.

Washington H. Soul Pattinson owns 60% of New Hope.

-By Rachel Pannett, Dow Jones Newswires; +61-2-6208-0901; rachel.pannett@dowjones.com

(David Fickling in Sydney contributed to this article)

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