Brockman Resources Limited (ASX: BRM)

Letter to Shareholders Regarding the Resource Super Profits Tax

Dear Brockman Shareholders

I would like to take this opportunity to thank all our shareholders and stakeholders that have maintained their confidence in Brockman Resources Limited (?Brockman? or ?the Company?) over the past turbulent weeks in the Australian and International stock markets.

The Marillana Iron Ore Project (?Marillana Project?) is progressing on schedule, as highlighted by the recent Public Environmental Review (?PER?) document being issued for public review, and the Definitive Feasibility Study (?DFS?) is now 68% complete. The Company remains focused on the development of the Marillana Project, and is in a strong technical and financial position to progress the DFS.

The principle objective of this letter is to update you and present my opinion on the recently announced Resources Super Profit Tax (?RSPT?) proposed by the current Federal Government.

Firstly, the RSPT, as proposed does not represent a tax aimed at ?super profits?. It is simply an additional tax targeted at one industry only within the Australian economy ? The Mining Industry. The proposed tax is ill-conceived, poorly structured and lacks clarity, definition and long-term value enhancement objectives.

The RSPT is being proposed to assist in the early return of the Federal Budget into surplus by 2013, but in the longer term, this tax will have a severe negative impact on the entire Australian economy through reduced investment in resource projects, leading to reduced employment, lower State royalties and reduced total taxation revenue. 

This is the same industry that saved Australia from the adverse effects of the Global Financial Crisis (?GFC?) and delivered an additional $15 billion of unbudgeted revenue to the Federal Government last year.  It is also the industry that Australia is relying upon over the next three years to support the national economy and bring the nation back into surplus. 

At a time when the global economy remains fragile and Governments around the world are doing all in their power to instil confidence and stability in their economies, the announcement of such a poorly conceived tax has already had a significant adverse impact on the Australian economy. The tax has not recognised the development risks and cost of capital required to build mining projects within Australia, nor its potential to stall the resource industry engine.

The proposed RSPT is non-reflective of a growing industry?s hurdles that will be endured during the scoping, design, funding and construction periods of a project?s life cycle.

The resources industry has invested well over $100 billion in Australian projects over the last decade, with another $110 billion of projects on the drawing board in 2010.  The majority of the so-called ?super profits? made by resource companies in the past decade have been re-invested into new or expansion projects, creating significant employment and wealth in the Australian construction and manufacturing sectors (and significant indirect tax revenue for State and Federal Governments). 

There has been no consultation with the industry about the RSPT prior to the announcement of its implementation. There is also a lack of clarity around the taxing point (i.e. at the mine gate or at the project level) for the RSPT. Further, there is no clarity on the treatment of depreciation and amortisation of capital expenditure.  Under the Petroleum Resources Rent Tax (?PRRT?), there is a 100% deduction for capital expenditure in the year in which it occurs (i.e. no PRRT is paid until all capital investment is repaid), but under the RSPT, capital will be depreciated over time but the rates of depreciation are not clearly specified, nor do they differentiate development projects from operating identities.

The mere announcement of the proposed RSPT has led to a 20-30% reduction in the market capitalisation of many of the Australia-focussed mining companies in the small to mid-cap range over the past weeks. This has affected the welfares of loyal and astute investors and their superannuation funds considerably, and will affect the long term ?sovereign risk? rating of Australia. The current uncertainty with the proposed tax is likely to delay mining projects, and as such, this poorly conceived tax is already impacting on the future strength of the Australian economy.

Australia, as stated by other mining executives, will become the highest taxed mineral resource country in the world, with an average tax on profits of 57-58%. In addition, the RSPT does not provide franking credit relief for dividends paid to Australian investors. This could ultimately lead to the reintroduction a double taxation of the profits of the mining industry, reversing one of the economic reforms that have contributed to the strength of the Australian economy.

A properly designed resources rent tax could be considered a logical and effective tax process to implement, provided it is structured fairly. Any tax reform must be based on sound economic principles and must not disadvantage the Australian resources industry compared to other countries and must not destroy the incentive to invest in new projects. 

I believe that the Federal Government should immediately abolish this proposed RSPT, and if required, enter into a suitable consultation process to carefully design an appropriate taxing regime to achieve our community objectives with reduced risk to the Australian economy and the mining industry.

Any proposed benefits from the increased superannuation payments between now and 2020, as flagged in the recent Federal Budget, would be quickly undermined by the decreasing returns from your superannuation funds, due to limited growth and expansion opportunities for your investment dollars.

I do not support the RSPT and believe it is not in the best interest of Australians either short term or long-term. Brockman will participate fully in discussions with the Government (both State and Federal) and relevant support committees, about the proposed RSPT and its potential impact on the future development growth of our state and nation.

I urge you to make your voice heard by contacting your local Federal Member of Parliament and urging the Government to reconsider this flawed new tax that threatens the future wellbeing and economic growth of Australia. Make your vote count in the upcoming Federal election.

Yours sincerely

Wayne Richards

Managing Director

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