How to disembowel an economy

That said, Rex is developing a copper project on the Yorke Peninsula just a few hours from Adelaide. It should have a resource figure for the project within a few months. The company says that drilling results look great. It also says there are reassuringly large, known deposits in the area.

Most of Rex's copper is close to the surface, which should make for a cheaper surface mining operation if the company gets to that stage. Being so close to Adelaide makes it easy to access rail, road, ports, power, water, as well as well as people to run the whole show, which keeps costs lower than for many far more remote projects.

The company also has a precious metals project in New South Wales with what it hopes is ten million ounces of silver, and quarter of a million ounces of gold. The managing director, Steve Olsen, said precious metals prices are looking stronger than ever, now that the major currencies of the world are "attempting to hit parity with the Zimbabwe dollar".

The second company to speak was Iron Clad Mining (ASX:IFE). It has an iron ore project also in South Australia. It is at an early stage as well but looks like it could become similar in scale to Atlas Iron's projects if the company does what it plans. The ore is already 62 per cent iron, so needs no processing, and is very low in impurities. The company is just a few months from a feasibility study (which you can think of as a mine's business plan).

Patrick Clifford, the company's General Manager, answered the tax question on everyone's lips by saying that he thinks there is "zero chance" the tax will go through in its current form, and hinted that he thought Labor wouldn't make it through the next election.

I'm thinking along similar lines, and below is what I wrote on the matter in Diggers and Drillers two weeks ago:

"The quickest way to lose a few million voters is to make them poorer."

At the last count (December 2008), 41 per cent of voting-age Australians were invested in shares off their own back. As of December 2009 the resource sector made up 33.4 per cent of the $1,400 billion total market cap for the entire Australian market. Ripping down the value of such a big chunk of the market is going to be felt in a big way by a very large chunk of voters.

As for superannuation funds, nearly ALL voters will be affected. Currently around $120 billion, or 11 per cent, of the $1.1 trillion super-fund pool is invested in our resource sector. Crippling the present and future value of the resource sector is going to make a big difference to the total value of these funds, and everyone will feel it.

With an election round the corner, the tax is not a great political move. Although he technically has until mid-April next year to hold an election, because of Victoria and NSW state elections and the Christmas break, he realistically has to hold the election before the end of October. So his campaign would need to start in September, just four months away.

The whole iron resource sector must be hoping for the same outcome. The latest casualty is Fortescue Metals (ASX:FMG) which said it was moth-balling A$18 billion worth of expansion projects until the future of the tax is clearer. In his own words Andrew “Twiggy” Forrest "can't get a banker to step up to the plate" for his new projects. If the tax goes ahead, they just won't be profitable enough. The projects go on ice until there is some clarity on what is going to happen. Forrest said "until that time, I am hoping sanity will prevail".

Add Fortescue to a long list of others shelving big projects. All up, The Minerals Council of Australia reckons about $100 billion of potential mining projects will be put on ice, although this figure is already starting to look too conservative.