how was your quarter?, page-11

Mining investment in Oz to decline by 40%


PERTH (miningweekly.com) – Investment into Australia’s resources sector would decline by about 40% over the next four years, economic forecaster and industry analyst BIS Shrapnel reported on Monday.
“In terms of the mining investment bust, we have hardly begun – this has a long way to run,” said BIS Shrapnel’s infrastructure and mining unit’s senior manager, Adrian Hart.
“While investment has already fallen sharply across coal, iron-ore and other commodities, it was the boom in gas which drove the peak in investment in 2013/14. Indeed, without oil and gas, mining investment would have fallen 25% in the last financial year. However, the completion of a range of large gas projects on the east and west coasts will be the key driver of the long slump in investment from here.”
At its peak, mining investment in Australia reached $93.1-billion.
Hart noted that the sustained downturn in mining investment would create strong headwinds for the Australian economy, presenting challenges for the federal and state governments.
“With public investment set to fall further through 2014/15, and most industry sectors not yet needing to invest to cater for strong demand growth (outside of parts of the housing market), the economy is expected to remain weak before recovering after the middle of the decade,” said Hart.
“While there will be increasing pressure for governments to step in and promise growth through infrastructure spending, it is important that they remain focused on delivering projects that meet cost-benefit objectives.”
Despite the predicted decline in investment, Hart said that the mining sector as a whole would continue to grow strongly, with mining production forecast to surge by one-third over the next four years, driving a corresponding increase in mining operations, maintenance and exports.
“Essentially, the investment boom continues to shift to an echo production, operations and maintenance boom. Over the past three years, the real value of mining production has increased by 30%. It now makes up 10% of the national economy on this measure. Another 33% growth is expected over the next five years, with the share rising to 12%,” Hart said.
He pointed out that in Western Australia, the value of mining production would overtake that of the entire Australian manufacturing sector during 2014/15.
However, BIS Shrapnel warned that severe challenges were expected to remain for both miners and industry contractors.
“The much publicised losses in employment and the closure of mining operations are the consequences of a market reeling from lower prices, stubbornly high Australian dollar, and weaker growth in export demand – in contrast to the favourable period of investment that accompanied record prices during the 2000s,” BIS Shrapnel economist Rubhen Jeya and author of the 'Mining in Australia 2014 to 2029' report said.
“The price of coal and iron-ore – the two flagship bulk commodities which had held Australia’s exports high over the last few years – have suffered significantly over the past years, recording multi-year lows. Miners should expect these less than ideal conditions to continue over the next few years. The relatively high Australian dollar does not make the situation any better.”
Jeya said that miners have responded to these conditions by making deep cost cuts and redrawing mine plans in the hopes of increasing productivity and efficiency within their existing operations.
“Coal miners with take-or-pay contracts are hurting. The price for thermal coal has stayed too low for far too long and some have either gone belly-up or are teetering on the precipice. The flip-side is that as this ‘natural attrition’ continues, the effect of withdrawing supply from the market enhances upside possibilities for coal prices. Nonetheless, hard choices on operational viability need to be made. It won’t be an easy environment to navigate.”
Jeya added that overall, contractors and suppliers to the mining industry should be aware that the end of the current boom in mining investment still presented opportunities in other parts of the mining boom, which were still unfolding, including operations, production and maintenance.
Eventually, global efforts to slash investment in response to currently weak prices would itself help create the price conditions for new investment cycles in future, Jeya added.
“The challenge is to make the right strategic choices today to take advantage of the opportunities as they come along, commodity by commodity, region by region, in what will remain a highly cyclical industry.”