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HUGH DE LACY reports from the New Zealand branch of the Australasian Institute of Minerals and Metallurgy conference (Aus-IMM) in Wellington, which drew 350 delegates and covered topics ranging from the global birth of undersea mining on the Kermadec Arc, legislation covering New Zealand’s Exclusive Economic Zone, and the new resources lobby group ‘Straterra’. The historical reluctance of Kiwis to invest in the mining industry is being eroded by a combination of changes to the tax laws and the creation of the super fund and Kiwisaver schemes, BT Funds Management portfolio manager Paul Richardson told the Ausim conference. Investment in mining is at a crossroads in this country thanks to the alarm among business leaders and policy-makers over the massive difference in scale between the Australian and New Zealand investment industries, Richardson says. “NZX [the New Zealand stock exchange] has a low market capitalisation to GDP [gross domestic product] of minus 40 percent, and this has been flat for the last decade. Australia is well over 110 percent of their GDP. Australia has five times the population, six times the GDP and has an equity market 24 times the capitalisation,” he says. This is partly to do with the NZX’s role as a small regional exchange, but Australia has nevertheless developed the world’s fourth largest funds management industry at A$1.1 trillion ($1.35 a tonne) even though it’s only the world’s 15th largest economy. However, three recent changes in the New Zealand investment environment have come through the passage of the Taxation (Annual Rates, Savings Investment and Miscellaneous Provisions) Act in 2006, the creation of the NZ Super Fund in 2003 and the launch of the Kiwisaver retirement scheme last year. The tax changes have resulted in “an invigoration of the funds industry with a range of PIE [Portfolio Investment Entities] being created, and Australian fund management groups seeking to expand into this market,” Richardson says. This has so far, however, proved no panacea because of its unfortunate coincidence with “the rout in the global equity markets.” The second major change is the creation of the super fund. Starting with $2.4 billion and gaining $1.5 billion a year from government infusions, the fund is expected to reach about 32 percent of GDP by 2020, providing a universal pension to retirees at 40 percent of the average wage. The fund has grown to $14.7 billion, of which 7.5 percent is allocated to New Zealand equities. The third factor is the creation of Kiwisaver which was made so attractive to New Zealand workers – by way of a $1000 government contribution and a mortgage diversion option - that around 780,000 of them have signed up with 33 fund providers and more than 50 investment products to choose from. Because Kiwisaver fees are held at low levels, the funds are initially loss-making for providers, “but all eyes are on the long-term potential, as fund flows slowly build up and thousands – perhaps millions – of New Zealanders build future savings for retirement,” Richardson says. Together he expects these developments to ultimately revolutionise New Zealand investments in mining.
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