Incitec Pivot/
Legend International Holdings

(IPL-ASX)

Stock Rating: Market Perform
Stock Price: A$3.25
Target Price: A$3.50

(LGDI-NASDAQB)

Stock Rating: Outperform(S)
Stock Price: US$1.16
Target Price: na

May 3, 2010

Brief Research Note

Fertilizers

Joel Jackson, P.Eng.

(416) 359-4250

Joel.Jackson@bmo.com

Phosphate May Merit Exemption From Australian Resource Rent Tax

Impact

Neutral

Details & Analysis

Phosphate is cited as one of a few dozen resources that may merit exemption from the 40% resource rent tax recommendation announced by the Australian government for July 2012. The broader tax recommendations also include a reduction in the corporate tax rate to 28% from 30%. Potassium minerals (potash) are also included as possibly being exempt from the resource rent tax, although there is not a potash mine in Australia. From our first glance, the revisions should have a roughly neutral impact on our valuations of Incitec Pivot and Legend International. Incitec Pivot is Australia’s only significant phosphate miner with around one million tonnes of phosphate fertilizer production capacity. BMO was already assuming a long-term 28% corporate tax rate for IPL. Our NAVPS estimate for LGDI of US$2.44 would be boosted 3-4% by a reduction in the long-term corporate tax rate assumption to 28% from 30%. We assume that the current Queensland government royalty for phosphate will remain intact (a per-tonne royalty based on the average phosphorous content of the rock, FX rates, and the current price of Moroccan phosphate rock).