a jumb ahead

Shortages hit mining
Robin Bromby
March 07, 2005
CRITICAL shortages of mining equipment – everything from tyres to replacement vehicle parts – are fuelling fears the commodities boom is placing unsustainable strains on the Australian mining industry.

Soaring materials prices and contractor rates, coupled with a dearth of skilled workers in areas such as engineering and geology, are already starting to derail projects at the junior end.

But senior industry figures are saying privately that some of the biggest upcoming projects and expansions could be jeopardised because they will not be able to find the people, the machinery and the construction supplies to build new mines.

Croesus Mining and View Resources have shelved new gold mining projects because of rocketing charges from earthmoving contractors.

View called off its Bronzewing mine development last week, after learning that a 30 per cent hike in earthmoving costs would have added $50 million to the project over four years. This, added to shortages of skilled workers, made it financially unjustifiable.









But the shortages have spread to mining equipment.

There are now 18-month waits for new tyres for excavator and pit trucks, with prices for equipment in second-hand markets soaring. A Caterpillar 785-model 150-tonne truck with 50,000 hours now costs about $1 million – about the same as the price tag on a new truck, if you can get one.

Mining industry sources in Western Australia say some equipment dealers are taking orders for well into 2007 – and not before.

Steel prices have also doubled since 2003, and diesel costs have skyrocketed.

Any small resources company now planning a mine development, such as Bendigo Mining in Victoria, will have to redo all the figures, if they are going to buy steel for a processing plant.

Bendigo managing director Doug Buerger said the cost of the company's planned 300,000- tonne-a-year treatment plant had rocketed from the $25 million, flagged in the feasibility study, to $43 million. Half of that increase was due to higher costs of steel, concrete, earthworks and electrical work.

Intersuisse resources analyst Gavin Wendt said soaring steel prices would hit many new resources projects, such as the planned gas pipeline from Papua New Guinea to Queensland. "That would represent a huge cost blowout," he said.

But any small mining company aiming to build a treatment plant for a new project also would be hard hit. "There will be many companies out there working on feasibility studies that suddenly will be faced by a whole different set of costs," he said.

Miners typically operate fleets of vehicles. Dominion Mining at its Challenger gold operation in South Australia uses 450,000 litres of diesel a month. With diesel prices rising 20c a litre since mid-2004, managing director Peter Alexander said that added $90,000 a month to Challenger's operating costs.

"Fortunately, with a high-grade mine we can absorb these sort of costs," he said.

Mining contractors are facing a different sort of cost squeeze – having to constantly replace skilled staff.

One contracting executive who did not want to be named said there used to be an unwritten rule that, when a contractor went on to a mine site, the mining company would not poach staff. No longer. "As soon as the client hears that contractor has someone they need, money is no object. It's an integrity-free zone," he said.

The contracting company had one senior manager who was offered a 60 per cent pay hike to change sides. Super contributions of up to 15 per cent of salary and more weeks off were other enticements used by the big miners.

The executive said this trend was fuelling a huge inflationary surge in mining costs.




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