The possibility that changes to the resource super profits tax will be implemented by a Julia Gillard-led Labor government has refocused attention on the sector. Citigroup believes the bigger miners represent better value than smaller ones. A Citigroup report says that in the “post-April sell-off” that occurred when the tax was announced, the big-cap ASX 100 miners underperformed the smaller-cap miners. “Australian mining equities have been out of favour with global investors and the global risk trade has unwound,” the report says, adding that, if the proposed tax were implemented, investors would not return in a hurry. “BHP Billiton and Rio Tinto will still be bought due to their global presence but many of the smaller miners will be left alone by offshore investors and so underperformance looms,” it says. Citigroup’s picks are: PanAust, because it is not exposed to the tax and is a potential acquisition target; Whitehaven Coal, for its exposure to coal and the possibility of an acquisition; and uranium miner Paladin Energy because it has operations outside Australia. The report also notes that the 12 per cent price-earnings ratio premium BHP and Rio have over smaller peers is the smallest since the global financial crisis in late 2007. Peter Strachan , founder of StockAnalysis , reckons the tax favours less-efficient miners. Strachan believes the result of such a tax would be to reduce the incentive for a high-cost, inefficient project to improve. “There needs to be an incentive for the weak to pick themselves up and improve,” he says. A higher currency may attract overseas investors because it increases the relative value of Australian mining companies’ earnings. According to a report by Goldman Sachs JBWere, the Australian and Canadian dollars are becoming reserve currencies as central bankers seek alternatives to deteriorating government credit quality in Europe, the United States and Japan. Russia may add the two currencies to its reserves for the first time and the International Monetary Fund may add the Australian dollar to its basket of currencies.

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