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Australia went to the polls on the weekend and when vote counting stopped it appeared that neither side would have a majority, so that the first minority government in 70 years will be formed. Before discussing the effects of the poll, here is some background about the main parties:

Labor Party -- basically a left of center party analogous to what you find in Europe. Internally there appears to be battles between factions on the right which are more likely to be pro-business, and factions on the left which are more likely to be pro-government spending and intervention.

Liberal Party -- the word "liberal" has different connotations to its every day use in the USA. The party is right of center and generally conservative (in a US context). When in government, the Liberal party has traditionally formed a coalition with the National Party.

National Party -- this party exists to serve the interests of rural Australia. The party philosophy is a strange mix of ultra conservatism and agrarian socialism. I'd characterize them as free traders when it comes to exports, and protectionist when it comes to imports -- not unlike sections of the republican party here actually.

Greens -- This is basically a watermelon party: green on the outside and red on the inside. They use green issues to obscure a far left agenda.

Depending on which news organization you source, it appears that at the moment no party can confirm victory in more than 72 seats -- 76 seats are needed for an outright majority. There will be at least 4 independents, and most likely a 5th will eventually win according to the punditry. It appears 3 or 4 seats are too close to call and will probably have to have recounts to confirm the results. Of the 4 confirmed independent winners, one is a Green who has pledged to support the Labor party. The other 3 independents are all former National party members who would be expected to side with the Liberal/National coalition in return for some pork barreling in their regions, and for the rural sector generally.

Importantly these 3 are likely to be pro-mining, or at the very least neutral on mining. The possible 5th independent is a former intelligence analyst who resigned many years ago in protest about how information was being manipulated to justify Australia's participation in the Iraq war. He apparently has since stood for election for both the Liberals and then the Greens, so hard to get a handle on which why he might lean.

So, if the Liberal/National coalition can get to 73 then it seems likely that they will be able to rely on 3 independents and therefore form government. Punditry in the Australian press has the coalition more likely to be the party to form government. The Liberal/National coalition had promised not to introduce the proposed mining tax, so on the face of it, this could seem like a good result for the mining industry.

The problem is that the Greens won a large number of seats in the Australia senate and hold the balance of power. This means that whoever forms government will not be able to get laws passed without cooperation from the Greens. However, the new senate term does not take effect until July 1 next year, giving the government a window in which to try and get laws passed. Once the Greens assume the balance of power it is not too much of stretch to imagine them blackmailing (green mailing?) the government to try and force elements of the Green agenda to be adopted in return for the passage of laws in the Senate.

Top of the list would likely be an emissions trading scheme which Labor had proposed but scrapped this year amid a decline in public support. It is worth noting that Mr Abbott took control of the Liberal party essentially on a platform of opposing an emissions trading scheme. Needless to say, such a scheme would be financially harmful to business. The other area for a potential Green attack will of course be the mining industry.

It is important to note that the Greens can't themselves pass laws or taxes that are damaging to business. But, since they are in a position to block all laws proposed by the government, they can obviously wield disproportionate power and influence. Should Labor form a government, I would think that Green influenced anti-mining and anti-business legislation would be a given.

In summary, the substantial rise of the Green vote in the Australian senate creates a good measure of uncertainty. A Liberal/National coalition will resist the Green agenda, but will likely to be forced into making some concessions in order to get their own agenda passed. On the other hand, a Labor government would likely adopt a lot of the Green agenda. If, as it currently appears, a minority government will be formed, I'd expect another election to be called in 12-18 months.

I currently own BHP Billiton (NYSE:BHP) and, hindsight being 20:20, now wish I had sold at least a portion of my holding. I've had some other distractions unfortunately. Best time would have been prior to the announcement of the proposed takeover of Potash since I presume the current trade is short BHP and long Potash Corp. (NYSE:POT). In addition to the uncertainty surrounding this election, BHP and Rio Tinto (RTP) also appear that they will not get regulatory approval for their proposed joint venture, which had been forecast to result in 10 billion (5 each) in cost savings from synergies.

This is obviously a big blow to the bottom line of both companies. Overall then, the last few days have not been good for Australian based miners, particularly the "mega miners". In the short term, if the coalition form a minority government, then this will likely be a positive for miners. However, due to the increasing influence of the Greens, I think any positives will be short lived. My view would be to treat a coalition "victory" as a time to reduce your holdings. Possible winners? Well how about Vale (NYSE:VALE)?

Disclosure: Author is long BHP

Source: What the Australia Election Means for Miners