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Evy Hambro: Osborne's tax could derail commodities bull run
by Sarah Miloudi on Mar 30, 2011 at 07:56
George Osborne's £10 billion five-year levy on North Sea oil companies is part of a triple whammy of threats that could derail commodities' bull run, Evy Hambro, BlackRock's star manager, has warned.
The multi-billion pound levy was put forward last week as part of the chancellor's plans to curb soaring petrol prices, but Hambro, who runs the £1.6 billion BlackRock World Mining Trust , says it is part of a global trend for governments to claim a share of the 'economics' of firms.
Along with a severe crisis in China - a leading consumer of industrial commodities like copper - and the corporate governance concerns linked to some commodity stocks, Hambro says 'fiscal leakage' on the back of government policy is one of the biggest risks to the commodities space.
'Resource nationalisation is a trend we are seeing around the world. The governments are trying to grab more of the economics these assets have,' Hambro explained at an Association of Investment Companies (AIC) roundtable.
'You saw it only last week in the UK with George Osborne and the North Sea oil taxes, you saw it in Australia last year and this year with new resource tax initiatives, you are seeing it in Zimbabwe [where] last week Mr Mugabe wanted to take 51% of all the mining assets there, and Venezuela and Chile with the earthquake royalties. That fiscal leakage out of the companies as a result of governments' policies is going to continue to have an impact on the sector.'
As anticipated in last week's budget, Osborne decided to scrap the 5p fuel duty escalator which has helped drive up the price of petrol 16p per litre this year alone.
Instead, Osborne wants to ramp up the levy imposed on North Sea oil companies, which have been able to increase their profits on the back of climbing commodity values and continued lifts in global demand. However the multi-billion pound hike, which took effect at midnight on 24 March, was fiercely criticised by the oil firms it hit. Last night the intensity of the backlash against the suprise charge picked up as Statoil halted its North Sea drill. Scottish-owned Centrica and Valiant Petroleum are also understood to be re-thinking their operations there.
Fundamentals and margins will support copper
Aside from the threat of 'fiscal leakage' outlined by Hambro, who the 12 months to March 2011 has delivered has delivered 25.02% via his trust relative to 26.9% by the HSBC Glbal Minng Index, said severe instability in China or other emerging markets could also threaten commodities. 'China, the biggest driver of that market, [is a threat]. If growth was to fall away, there was to be a major financial crisis in any of these emerging market countries it could have a rapid fall in commodities,' Hambro explained, adding that aside from these potential risks the outlook for the biggest bets in his portfolio, which he runs alongside Catherine Raw, is positive.
Hambro and Raw are particularly bullish on the outlook for copper, thermal and coking coal, though less so on nickel and aluminium.
The pair pointed out demand for these commodities is not just prevalent in developing countries like China and India, as it is poised to come back with the rejuvination of western infrastructure.
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