Bloomberg cited Mr Colin Barnett Premier of Western Australia as saying that mining company profits in Australia will be crimped by the strong local currency.
Mr Barnett said that “I would prefer the Australian dollar to be lower. Profits will be negated in part by the strong Australian dollar.”
He said that “Commodity prices and demand will remain strong. I don’t see the sort of high peak that we saw 2007 or thereabouts.”
Western Australia which produces 15% of the world’s iron ore and 10% of its gold, accounts for more than half of the nation’s exports to China. The Australian dollar has been rising as demand for commodities increases and reached this year’s high of 94.06 US cents on November 16th 2009.
Mr Barnett said that “The real value of the Australian dollar is around the 75 US cent to 80 US cent range. The high value of the Australian dollar reflects the weakness in the US dollar and the fact that commodity demand is strong and our dollar follows commodity prices.”
The Foreign Investment Review Board said that surging metal prices have spurred an increase in China’s investment in Australia. Chinese and other overseas investors in Australia’s major resource companies should limit proposed stakes to no more than 15% to improve their chance of winning approvals for deals. Overseas investors in new projects should limit investments to less than 50%.
Mr Barnett said that “When I visited China in July I had a very strong impression that Chinese businesses, mainly state owned enterprises were struggling to come to grips with exactly what Australia expected. I found them really wanting clear guidelines. I think that’s improved.”
He said that BHP Billiton and Rio Tinto are scheduled to announce this month they have agreed to the terms of an iron ore JV in Western Australia. The venture will require legislative changes that may take about a year.
Mr Barnett said that “I have urged them not to take for granted the position of Western Australia. To accommodate what they propose will require significant changes to state agreement acts, which is a parliamentary process that will take some time. I have made it clear we expect the new entity to be paying full mining act royalties from July 5th 2010.”