Australian mining stocks rallied Thursday on a report that the federal government had made significant progress in reaching a deal with the nation's three biggest miners on a proposed new tax on the industry.

The Age newspaper, without citing sources, reported that the government had agreed to lift the rate at which the Resource Super Profits Tax kicked in, to exclude nickel operations from the new tax regime and had offered generous concessions on the treatment of depreciation of assets.

Shares in the big miners were boosted by the report, with BHP ending down 1.4% at A$37.11 after trading at A$36.76 immediately before the report was posted online, while Rio closed down 2.3% at A$65.10 after trading at A$64.20 just prior to the report.

The reported concessions from the government come in the wake of the appointment last week of new Prime Minister Julia Gillard, who has said resolving the long running and bitter dispute with industry over the tax is her top priority.

With a deal now looking imminent, the government is also expected to move quickly to call an election to capitalise on its boost in popularity after Gillard deposed former Prime Minister Kevin Rudd.

However, some miners, including Fortescue Metals Group Ltd. (FMG.AU) said they had been excluded from the process and called for wider consultation before a final policy was set.

BHP Billiton Ltd. (BHP.AU) Chief Executive Marius Kloppers, Rio Tinto Ltd. (RIO.AU) Managing Director Australia David Peever and Xstrata Plc (XTA.LN) Coal Chief Executive Peter Freyberg are meeting with Australia's Treasurer Wayne Swan and Resources Minister Martin Ferguson in Canberra for a second day Thursday to hammer out a compromise on the tax, according to a person familiar with the situation.

Under the government's original proposal, the tax kicked in when a project's rate of return reached the level of the long-term bond yield but The Age said this had now been raised to the long-term bond yield plus 7%, taking it to about 12%.

The newspaper also said the government has agreed to let the miners inject existing assets into the tax regime at market value, allowing them to claim large deductions for depreciation.

Morgan Stanley analyst Craig Campbell said this concession would be a big win for miners with older assets that had already been depreciated, like BHP and Rio Tinto's giant iron ore operations in the Pilbara region of Western Australia state.

But it would also benefit miners like Fortescue Metals that had newer mines whose market value had surged ahead of book value as prices for commodities such as iron ore and metallurgical coal had soared.

The Age report said it was not clear whether the government had agreed to alter the 40% rate of the tax but that it was believed it had given ground on this front.

Some analysts have been calling for a different tax rate for different commodities in recognition of the greater impact of the tax on some sectors.

The biggest gains in the share market were in nickel miners, which staged a dramatic turnaround on the report that they would be excluded from the deal.

Most nickel stocks were trading lower ahead of the report but Minara Resources Ltd. (MRE.AU) ended up 4.6%, Western Areas NL (WSA.AU) rose 1.3%, Mincor (MCR.AU) climbed 5.8% and Mirabela Nickel Ltd. (MBN.AU) rose 1%.

Not everyone in the mining industry was cheering at the reported progress in talks with the big three miners, with some miners complaining they had been left out of the process.

Fortescue, which had played a role in attempts to broker a deal under Kevin Rudd, said it had not been involved in any talks this week.

"We would want to ensure that any agreements reached in Canberra led to some framework for a discussion paper or industry consultation," a spokesman for the company said.

"FMG would be opposed to the discussions presently being held in Canberra with select representatives of multi-national mining companies leading to a formal government position or policy."

Smaller miners also raised concerns that a deal cut by the majors may not be in their best interests.

"By and large, we are not being represented in these decisions at present," Julian Malnic, chairman of the Sydney Mining Club, told a lunch gathering of miners.

"I would urge anyone you know who has any influence with the Australian mining industry not to cut any deal before the election."

- By Alex Wilson, Dow Jones Newswires: 613-9292-2094; alex.wilson@dowjones.com
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