The Australia we know today has
been largely shaped by its mineral industry: topographically,
culturally and economically.
From the feldspar-rich sandstone
that gives Uluru its distinctive red glow, to the gold-rushes
of the 1850s which lured in hopeful settlers from all over the
world, to the vast reserves of iron ore and coal staked by
mining titans such as Rio Tinto and BHP Billiton, the
nation’s mineral wealth has long been its crowning
glory.
Although somewhat overshadowed by
its traditionally-recognised abundance of metallic, precious
and fuel minerals, Australia’s importance as an industrial
minerals source should not be sniffed at.
The country hosts huge, though
often under-exploited, deposits of graphite, silica sand,
ilmenite, zircon, lithium, rare earths, kaolin, bentonite,
phosphate and salt, to name but a few.
While many of these resources are
yet to be commercially extracted, inroads have been made in
certain sectors (see table).
Belgium’s Sibelco Group has a
large-scale silica sand mining operation on North Stradbroke
Island off the coast of Queensland, and Australia Minerals and
Mining Group Ltd (AMMG) is exploring for mineral sands and
kaolin in Western Australia’s Perth Basin.
In rare earths, Lynas Corp. has
succeeded in becoming one of the only suppliers of the minerals
outside China with production from its Mount Weld mine in
Western Australia, and South Australia’s Eyre Peninsula is
reputed to be on the cusp of reviving its historic graphite
industry.
But since IM last
ran a feature on Australia’s industrial mineral resources
(April 2010, Land of Plenty), the country’s
mining industry has waved goodbye to the resource boom that
lent credence to its contemporary optimism.
Counting the cost of the boom
Like much of the rest of the world,
Australia has seen the prosperity of its resource operations
decline sharply since 2011, hit by falling mineral prices,
dwindling ore grades and a loss of investor confidence.
This has been compounded by a raft
of tax measures which have saddled the industry with an
unwanted handicap in what is already a fiercely competitive
international business.
According to Stephen Reid, an
Australia-based partner with the global professional services
firm Deloitte, Australia’s mining industry is still paying
the price of previous bullish behaviour which contributed to a
global commodity supercycle.
The supercycle saw commodity prices
and mining investment peak in 2011 at what have since proved to
be unsustainable levels. When the inevitable downturn
eventually came in 2012, it left many miners with expenditure
commitments that they are now unable to meet.
“Capital is in short supply,
with the main emphasis now being on the efficiency and
effectiveness of existing assets. Most companies are focusing
intently on [cutting] costs out of their operations, as well as
starting to tackle the much harder challenge of increasing
productivity,” Reid told IM.
He added that miners are targeting
portfolio returns and rationalisation in order to improve their
balance sheets. “Only high-quality, strategic projects
[are] proceeding, aside from a few that were committed to over
12 months ago,” he said.
Reid said that a number of projects
have been closed over the past year as trading conditions have
become more difficult, but noted that most operations have
simply been mothballed and could be reopened when conditions
improve.
The high value of the Australian
dollar has also been a problem, Reid said, particularly given
the current weakness in commodity prices. However, recent
declines in the currency’s value are beginning to restore
the competitiveness of Australian mineral exports.
Community
opposition
A further challenge for Australian
mining has come in the form of increased community opposition
to resource development.
On North Stradbroke Island, a
38km-long sand island off the coast of Queensland near
Brisbane, mining has been the subject of controversy since the
second half of the 20th century, when ecological
protection groups began to campaign against habitat depletion
caused by industrial development of the area.
At Sibelco’s silica sand mine
on North Stradbroke, local action groups have accused Sibelco
of mining sand illegally.
Environmentalists, backed by the
group Friends of Stradbroke Island, have obtained legal
opinions that Sibelco and its predecessor companies, including
Consolidated Rutile Ltd and Iluka Resources Plc, have stolen an
estimated A$80m ($74.1m*)-worth of sand from North Stradbroke
during their years of operation.
Earlier this year, a local
magistrate found that Sibelco had a case to answer on two
charges of illegal sand mining, and ordered the company to pay
more than A$250,000 in legal costs.
Sibelco has launched a Supreme
Court challenge to the prosecution, and said that it is
“committed to long-term sustainable operations on North
Stradbroke Island,” a stance which is backed by
Queensland’s Premier, Campbell Newman, who has pledged to
allow mining on the island to continue until 2027.
Elsewhere, attempts to restart
operations at the mothballed Hillgrove gold-antimony mine in
New South Wales have been repeatedly scuppered by obstacles
including community resistance on environmental and social
grounds.
Although the mine does now look set
to reopen under its new owner, Bracken Resources, earlier plans
to restart Hillgrove failed partly because local councils
highlighted the risk of antimony-run off into the Macleay River
catchment, which includes national parks and agricultural
land.
Other concerns have centred on the
disruptive impact mining has had on the local community of
Armidale. Past operators of Hillgrove have brought staff in on
a short-term basis to work the mine in so-called FIFO/DIDO (fly
in, fly out/ drive in, drive out) arrangements, disrupting the
lives of residents while failing to create jobs in the
area.
Bracken, which purchased Hillgrove
earlier this year from Straits Resources, has sought to allay
fears on both environmental and social fronts, with its CEO,
Roger Jackson, promising to operate the mine responsibly.
“We’re cleaning up the
site to ensure there are none of the older [environmental]
legacies that caused problems in the past,” said Jackson,
addressing concerns about the mine’s history of
pollution.
Jackson also assured Armidale
residents: “We aren’t looking at a fly-in, fly-out
operation. This means some people will move to Armidale, while
we’ll locally source other positions”.
The FIFO/DIDO
debate
FIFO/DIDO arrangements are not
uncommon in Australia, and are often seen as the only workable
solution where remote locations and harsh terrain make mine
sites unattractive or even impossible places for workers to
settle.
“In many cases, it just
isn’t practical for people to live out at mine
sites,” John Clout, a Perth-based independent iron ore
processing specialist who has lived and worked at several
isolated projects in the Pilbara, and other parts of Western
Australia, told IM.
Aside from meteorological extremes
of working in a remote desert landscape like the Pilbara, which
can see temperatures consistently over 40¡C for months at
a time, Clout said that settlements in the Pilbara and
Australian mid-west are often ill-suited to family life.
“Usually, only one spouse [who
is employed on the mining project] can work,” Clout
explained, “and the educational services for
mine-workers’ children, if there are any, tend to be
elementary at best.”
Although commonly seen as the most
practical option, the negative impacts of FIFO/DIDO include
high labour costs for mining companies, disruption to the
communities where they operate, and the failure to bring in
sustainable infrastructure development that would benefit
long-term residents.
While individual mining companies
are under pressure to promise social benefits in mining areas,
Australia’s government is also taking the issue of
transient mining communities seriously.
In a parliamentary report released
in January entitled Cancer of the Bush or Salvation of Our
Cities, The Standing Committee on Regional Australia
recommended the removal of tax benefits for mining companies
using mobile workforces.
The report was compiled over an
18-month period and made 21 recommendations to government and
14 to industry about how to improve mining operations in remote
regions. It focused in on the Pilbara, which has large iron ore
and salt depositsoperated by Rio Tinto, and is also home to
Altura Mining’s Pilgangoora lithium project (see
table).
The findings of the Cancer
report received a mixed reaction from the Australian
government. Most affirm that FIFO and DIDO arrangements are a
necessary way of life in Australia, while others have called
for better infrastructure in remote areas, which will make it
feasible for more permanent settlements to be established.
Australian costs
bite
Australia’s high labour costs
have figured largely in firms’ decisions to automate large
parts of their operations, or to buy in ore supplies from
elsewhere to save on wage costs at their own mine sites.
Over the past few years, Australia
has also seen the introduction of a number of controversial
resource taxation policies (see pp52-55), including a
carbon tax, a diesel tax, and the Minerals Resource Rent Tax
(MRRT), which have made the country one of the most expensive
jurisdictions for mining companies to operate in.
Logistics and energy are also
expensive in Australia, with miners either having to limit
their choice of project sites according to available
infrastructure, or stump up the cash to build roads and power
sources to serve their operations.
Sometimes these costs can prove a
tipping point for mining projects. This year, two industrial
mineral companies have mothballed projects in Australia, citing
operating financial pressures.
In January, Penrice Soda Holdings
Ltd announced it would be closing its Adelaide soda ash
facility and would instead import feed for its Australian
operations.
Several factors, including the
strength of the Australian dollar, lower international shipping
costs, increased energy and labour costs and increasing taxes,
made the import of soda ash more than 40% cheaper than
producing domestically, Penrice said in a statement.
“These same pressures are also
playing out across Penrice’s soda ash customer base (...).
Penrice does not see any significant change to these factors
occurring in the foreseeable future,” the company
said.
Penrice’s decision was
followed by lithium producer Galaxy Resources in March, when it
revealed that it had signed a three year agreement with Talison
Lithium, which owns lithium projects in Western Australia and
Chile, to supply its Jiangsu lithium carbonate mine in
China.
“Given the current exchange
rate and the adverse impact on local operating costs, it is
financially a better option to purchase external spodumene
today instead of resuming operations at Mt Cattlin,” the
then managing director of Galaxy, Iggy Tan, said.
The mothballing of projects has
been viewed by some as the start of a worrying trend for the
Australian mining industry, and concern is mounting that a
country that has rested comfortably on its mineral reserves for
more than a century is beginning to price itself out of the
supply market.
“With respect to the future of
mining in Australia it is fair to say that the industry here
has been badly impacted by the rising cost of doing business in
terms of wages, power, and transport, as well as the continued
threat of new taxes by the current government,” David Fox,
study manager for kaolin, base metals and gypsum miner,
Minotaur Exploration, told IM earlier this
year.
Attracting
investment
One of the ways that the Australian
government is looking to overcome problems facing mining is by
attracting investment in the industry, which it hopes will
kick-start a fresh wave of mineral development and confirm
Australia’s mining service sector as one of the best in
the world.
Two jurisdictions that have taken
the lead in this area are Western Australia and the city of
Brisbane in Queensland.
Western
Australia
In Western Australia, steps are
being taken to encourage resource investment in underdeveloped
areas through the introduction of the Western Australia
Exploration Incentive Scheme (EIS).
This scheme uses royalties
collected from established mining companies to help prospective
miners develop their projects, and consists of six programmes,
which are managed by the state’s Department of Mines and
Petroleum (DMP).
These involve improving the
tenement application process; awarding drilling grants; making
available new resource data from airborne surveys; providing
customised reports and maps online; hiring researchers for
exploration teams; and working with indigenous communities.
By making Western Australia an
easier place to do business, the EIS, which is slated to cost
A$80m to implement, is expected to stimulate private sector
investment in greenfield exploration projects.
Brisbane
On the other side of the country,
the Economic Development Board for the City of Brisbane is also
stepping up efforts to draw cash into the resource and energy
sectors.
“Our aim is to encourage
mining companies to set up their offices in Brisbane, and also
to focus on lubricating the supply chain that these companies
rely on,” Steven Silvester, director of investment
attraction for the board, told IM.
“We want to build up Brisbane
as a resource and energy hub by encouraging technology and
service firms to establish themselves in the city. We have
first class institutions in Brisbane, including the University
of Queensland and the Co-operative Research Centre for Mining,
so there are great opportunities for companies to engage with
these centres to develop the next generation of technology and
services,” he added.
Unlike the EIS in Western
Australia, Silvester explained that Brisbane’s investment
drive would not offer any cash incentives to private firms, but
said that the Queensland government was funding work on a state
geological survey to map resources in the state, which could
then be cherry picked by prospective miners.
Silvester said that Brisbane
represents a unique opportunity for resource companies to
establish themselves in a fast developing mining and technology
centre at the gateway to Asia. “We are hoping to attract
technology investment from all over the world, not just
Australia,” he said.
*Conversions made June
2013
