BlackRock Inc., the world's largest money manager, on Tuesday warned so-called resource nationalism was on the rise globally, threatening to undermine investment in sectors where governments were playing too heavy a hand.
BlackRock's investment chief for natural resources Evy Hambro singled out the regimes of Robert Mugabe in Zimbabwe and Hugo Chavez in Venezuela as extreme examples of government intervention, but also said Australia's move to introduce new taxes on mining companies was affecting sentiment.
Resource nationalism in producer countries, whether it is the urge to demand a larger share of mineral wealth via company ownership or through taxes, has become a growing problem for the industry as governments face tight budgets in the aftermath of the financial crisis.
"We're seeing a general trend around the world of resource nationalism with governments that are short of tax revenue... whether it's by personal taxation levels or extending into corporate or other ways," Hambro said at a media briefing.
"Obviously, you want to stray away from indigenization or nationalization, which is being proposed by Mugabe in Zimbabwe or Chavez in Venezuela on one end of the extreme," Hambro said.
At the same time, "Australia has definitely dropped down the list because of the uncertainty around their taxes," he said.
Australian Prime Minister Julia Gillard on Tuesday vowed to introduce a controversial 30 percent mining tax on iron ore and coal miners next year, hoping to collect A$7.7 billion ($8 billion) in its first two years to help the national budget return to surplus.
Gillard also wants to establish a carbon tax that would force around 500 big polluting companies to pay for carbon emissions, initially at a rate of A$23 ($23.75) a tonne.
The global fight for natural resources has intensified in recent years with the fast growth of emerging markets, leading to some high-profile cross-border takeovers being blocked by governments.
Last year, the Canadian government killed BHP Billiton Ltd.'s $39 billion bid for fertilizer maker Potash Corp.
Turning to markets, Hambro said most commodities remain on a solid footing despite recent price routs and that mining stocks in general were undervalued and ripe for investment.
A roughly 25 percent decline in iron ore prices and a 20 percent drop in copper prices this year were creating a "massive opportunity" in oversold mining equities, Hambro said.
"Valuations are at very low levels," Hambro said.
Recent declines in global iron ore prices could lead to a drop in supply, leading to a later upside rebound in prices, according to Hambro.
Iron ore producers should benefit from continuing strong sales to China, which was reducing consumption of lesser-grade domestic ores in favor of imported ore from the likes of BHP Billiton, Rio Tinto and other suppliers, he added.
Hambro also said that widespread destocking of copper inventories in China had obscured underlying strong demand for the metal in the world's top consuming nation.
As of March 31, 2011, BlackRock held $3.65 trillion in assets under management, according to its web site.
Investments by BlackRock in mining accounts for $35.75 billion, making it one of the world's largest single holdings in the sector.
"By and large it's been a very tricky year... The moves we are seeing in the market at the moment are reflecting that the sector is very oversold relative to the fundamentals," Hambro said.
© 2021 Thomson/Reuters. All rights reserved.