By Rhiannon Hoyle 
 

SYDNEY--The head of Rio Tinto PLC's (RIO.LN) iron-ore business has railed against a proposal from a Western Australia lawmaker to increase taxes on its operations in the state, saying such a move would result in further cuts to jobs and investment.

Brendon Grylls, the new leader of the Nationals party in Western Australia, says he will seek to raise a state tax on iron-ore mining paid by Rio Tinto and BHP Billiton Ltd. (BHP.AU) to 5 Australian dollars (US$3.80) a metric ton from 25 cents. The Nationals party is the smaller party in a ruling alliance with the state's Liberal party.

"This new discriminatory mining tax would have a devastating impact on our business at the worst possible time in the commodity cycle," Rio Tinto iron-ore chief executive Chris Salisbury said in a memo to staff on Friday.

The price of iron ore, used to make steel, slumped to a decade low around US$37 a ton in December from as high as US$190 a ton in early 2011, weighed by rising mine supplies. It has since recovered to about US$60 a ton, although some analysts say the price could fall back to decade-low territory in the next year or two as global mining output increases further and China's massive steel industry cools.

Previous efforts to overhaul the resource-rich country's century-old system for taxing miners have been controversial. In 2010, then-Prime Minister Kevin Rudd proposed a new 40% tax on miners' profits. The plan sparked a bitter war with Australia's biggest firms, who argued the plan would hobble the country's economy, and contributed to Mr. Rudd's ouster by his own party colleagues. Days after being named leader of the then-ruling Labor party, Julia Gillard lowered the proposed tax on big miners, prompting new cries of favoritism from smaller miners. Labor lost power in 2013 and the federal tax was later repealed.

Mr. Salisbury said the latest tax proposal has "severe knock-on effects" for investment and could result in further cuts to jobs in Australia's resource-rich Pilbara region, which supplies more than half of all the world's iron ore traded by sea. "There are no grounds for a new mining tax in Western Australia, and we will do everything in our power to secure the future of our business, and your jobs, by opposing it," he said in the memo.

Australia's iron-ore miners have already pared back investment and jobs in the region because of the price downturn.

BHP also raised concerns over what it labeled a damaging proposal. "We do not understand why a proposal that is so discriminatory and uneconomic would be targeted at two companies," it said in an emailed statement.

Mr. Grylls said the tax increase could raise billions of Australian dollars in the coming years for the state as its government looks for ways to plug a budget deficit.

Rio Tinto and BHP are the world's No. 2 and 3 iron-ore suppliers, after Brazil's Vale SA.

 

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

 

(END) Dow Jones Newswires

August 12, 2016 03:28 ET (07:28 GMT)

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