The government and large miners have negotiated a breakthrough compromise deal on the mining tax that not only keeps the broad structure of the tax in place but saves most of its benefits, especially the SG uplift.

Driving the negotiations were Deputy Prime Minister and Treasurer Wayne Swan, Resources Minister Martin Ferguson, Prime Minister Julia Gillard, and senior executives from BHP Billiton, Rio Tinto and overseas listed miner Xstrata.

Broadly speaking, the RSPT is dead, to be replaced by the Minerals Resource Rent Tax that sees the headline tax rate cut by a quarter to 30 per cent, a huge rise in the uplift rate to bond rate plus 7 percentage points, the abandonment of the government co-investment rebate concept, and a narrowing of the scope of the tax to the most profitable minerals in iron ore and coal.

The compromise reduces expected revenue from the mining tax by $1.5 billion, which Treasurer Swan this morning said necessitates a reduction in corporate tax rate cut from 30 to 29 per cent rather than 28 per cent as originally proposed.

The increase in the SG from 9 to 12 per cent has however been protected, as has most of the infrastructure spending initiatives contained in the original tax proposal.

Small mining companies with resource profits below $50 million per year will not have an MRRT liability. In addition, the tax will only affect iron ore, coal, oil and gas companies, reducing the number of affected companies from 2,500 to approximately only 320 miners.

While the draft legislation is yet to be drawn up, the MRRT is still set down for a 1 July 2012 start date.

The Minerals Council of Australia (MCA) has endorsed the new deal and said the new MRRT stands to deliver a positive outcome for Australia and its minerals industry.

"It is a fundamental improvement on the original super mining tax proposal, which would have seriously undermined the industry's international competitiveness, increased sovereign risk and cost jobs," said Mitch Hooke, chief executive at MCA.

The Association of Superannuation Funds (ASFA) has welcomed the compromise deal, as have other superannuation interest groups.

Market reaction

The market responded positively in early morning trade, rising more than 1 per cent at open and remaining 0.25 per cent higher than the previous day's close before midday today.

Ben Potter, market strategist at IG Markets, said the MRRT is a huge win for Australia's biggest industry and should go a long way to easing the markets concerns.

"This new tax will remove a lot of uncertainty, which has clouded the market for some time. It has the potential to spark renewed offshore interest in Australia's mining and energy assets again, with fresh capital inflows likely to be seen," he said.

John Robinson, chair at listed company Global Mining Investments, said changes to the tax proposal means all mining companies must be re-rated by broking firms.

"One of the major things that was having a dampener on the sector was the uncertainty that it created. Because that's been removed, it will cause a re-rating," he said.

Fund managers well positioned

Paul Xiradis, chief executive and head of equities at Ausbil Dexia, which manages more than $11 billion in Australian equities alone according to Rainmaker, said the fund manager remained overweight to the resources sector despite the proposed RSPT.

"We felt there would have to be some adjustment so we're quite happy with the outcome," he said. "I don't think we're going to add too much to it but possibly we could."

Chris Clayton, chief executive at Acadian Asset Management (Australia), said the quantitative fund manager did not make any major changes to its Australian equities portfolio when the RSPT was announced because of the lingering uncertainty.

"We believe the revised version of the tax will have only a minor impact due to a significant increase in the uplift rate and the new limitation to cover only iron ore and coal [companies]," said Clayton.

According to Acadian's fund update in May, its Wholesale Australian Equity Fund has a 25 per cent exposure to the materials sector.