For most of the last decade, mining countries
around the world have regarded Australia with wide-eyed, if
faintly grudging, admiration.
As a mineral-rich, politically stable Western
democracy with a mature economy and skilled workforce on the
doorstep of raw material-hungry Asian economies, Australia was
ideally placed to net the rewards of the seismic upswing in
global mineral demand which took place between 2000 and
In step with what economists have labelled the
"commodities supercycle", led by mushrooming growth in China,
what emerged in Australia was a 10-year mining investment
Miners scrambled to ramp up capacity to take
advantage of soaring demand and mineral prices, ploughing
billions of dollars into new road and rail infrastructure,
processing facilities and recruiting everything from engineers
to camp cooks. According to a report published in August 2014
by the Reserve Bank of Australia (RBA), the boom represented
"one of the largest shocks to hit the Australian economy in
generations", tripling the global price of
Australia’s mining exports over the last
Investment spending by the mining sector
quadrupled from 2% to 8% of national GDP over the same period,
while per capita disposable household income increased by 13%
as real wages rose by 6%, unemployment fell and the value of
the Australian dollar appreciated, the RBA report found.
Unfortunately for Australia, demand for its
minerals peaked and began to cool just as much of its newly
built capacity began to come online.
The global economic crisis of 2008 hit raw
material consumption in many of the world’s
biggest economies, including the Japan, the European Union and
the US and China’s double digit economic growth
started to slow from around the end of 2010, and has officially
fallen to around 7% today.
Prices for iron ore, Australia’s
largest mineral export by volume, have crashed to as low as
$70/tonne; private sector capex spending on mining has declined
by 10.9% in the last year; and engineering
has fallen by 6.5%, data released by the
Australian Bureau of Statistics (ABS) revealed in August.
Chins up Down Under
Australia’s official responses to
the downturn in its resources cycle have been mixed, although
many are typically stoical.
"We don’t talk about a 'mining
boom’ as such - the boom was actually in the
construction cycle and it had to level out at some point,"
Kevin Skipworth, agent general for the Western Australian
Government’s (WAGO) European office, told
He said that WA’s mining industry is
now moving from building to production which, although lagging
the headline growth figures achieved through capex spending, is
beginning to yield the more sustainable benefits offered by
mineral sales revenues.
WA’s capital, Perth, remains a
leading destination for national and international mining
businesses to establish, Skipworth adds, thanks in part to the
status of the Curtin University as a pioneering institution for
mining research and technological innovation, combined with the
city’s wealth of specialised legal, financial and
insurance services for the resources sector.
Queensland Resources Council (QRC) takes a
similarly positive view. "Far from a 'collapse’,
what we are seeing in Queensland is a transition from a 10-year
construction boom to the production phase,"
Michael Roche, CEO of QRC, told
He notes a there is now a greater focus on the
energy commodities, coal and gas, but stresses that the boom
has raised Queensland’s profile as a global centre
of mining excellence - a reputation that will endure and
continue to benefit the state, even as capex on
Queensland’s mining fields is rolled back.
"It’s no coincidence that Brisbane
is home to many corporate and academic global technology
centres including JKMRTech, the Sustainable Minerals Institute,
Centre for Mined Land Rehabilitation and Cooperative Research
Centre for Mining," he said.
Other states have been more frank about the need
to transition to a different, diversified type of economy. Mike
Baird, former treasurer and now premier of the New South Wales
(NSW) government, acknowledged that NSW had benefitted from the
mining boom but said the state’s diverse business
interests meant it was well placed to build its economy outside
the resource sector.
"Our strength has always been our diversification
and as we move beyond the mining investment stage and move into
(…) a services and agriculture based future, NSW is
incredibly well positioned," Baird said in response to a
Deloitte Access Economics report published in October 2013,
which estimated that a shift away from mining could generate
A$250bn ($217bn*) for NSW over the next 20 years.
Far from turning his back on mining, though, in
November 2014 Baird pledged to introduce planning reforms that
will halve the time it takes to approve "state significant"
infrastructure projects in NSW and came down hard on the
"disrupting activity" of anti-mining protestors.
One of the major concerns facing
Australia’s mining industry is that many of its
operations, predicated on high prices and strong demand, have
effectively priced themselves out of the post-boom market.
The country has seen a swathe of mine and plant
closures across Australia in the last two years, including
Penrice Soda Holdings’ soda ash plant in Osborne,
South Australia and the mothballing of Galaxy
Lithium’s Mt Cattlin lithium mine in WA, as well
as large scale shutdowns of coal mines in Queensland and NSW
and the suspension of huge iron projects in WA.
Many of these closures have been put down to the
country’s lack competitiveness in a weaker pricing
environment, compared to other countries around the world.
QRC’s Roche admits that remaining
competitive is crucial to successfully riding out the period of
transition from construction to production in the mining
"Global competitiveness is central to the
long-term future of the resources sector in Queensland," he
told IM. "We can’t assume
customers will beat a path to our door based on our past
performance. There’s no brand loyalty in
A Minerals Council of Australia paper entitled
"Australia’s Competitiveness: Reversing the
Slide", was released in September, and focused on how
Australia’s resources sector can enhance its
"Overly expansionary fiscal settings of federal
and state governments in the wake of the crisis, settings that
have yet to be fully reversed, have contributed to the
[Australian] dollar’s strength and been a major
source of our competitiveness problem," Griffith University
professor, Tony Makin, who authored the report, states.
"Interpretations differ about the mining
boom’s impact on Australia’s economy.
On one hand, the 'Dutch disease’ perspective
highlights the negative impact of a higher real exchange rate
on the competitiveness of sectors outside mining. A more
plausible and positive view emphasises pursuit of the
economy’s comparative advantage which has raised
national income and households’ international
purchasing power," he adds.
Makin notes that Australia’s
competitiveness rating by the World Economic Forum has slipped
the top ten, to 21st place, but stressed that
Australian-produced minerals are still marketable.
"While the boom-related appreciation of the
exchange rate led to a loss of competitiveness, this does not
imply Australia has been producing goods the rest of the world
no longer wants. On the contrary, world demand for
Australia’s natural resources has substantially
increased," Makin said.
He concludes that in order to increase the
country’s standing there needs to be a "national
conversation about our international competitiveness".
"Australia will not durably improve its
competitiveness without serious fiscal and structural reform,
including labour market reform," he warns.
Liked to the question of competitiveness is the
issue of wage growth. During Australia’s boom
years, mining companies were competing for a shortage of both
skilled engineers and 'blue collar’ workers to
staff operations at mine sites, contributing to rapid
nationwide wage inflation.
Although the cost of labour in
Australia’s resource sector is acknowledged to be
high, Skipworth argues that its position relative to other
mining nations has been overstated.
"There is a perception that Australian costs are
excessive, but if you look at the resource sector globally,
they’re actually level pegging," he told
He also points out that the slowdown in
Australia’s mining industry and the consequent
deepening of the labour pool has taken the heat out of
"Wages growth has more than halved in the last
two years, from about 6% per annum down to around 2.5% today,
as we’re not seeing that kind of critical demand
for labour now," he said.
While the returning of skills to the market is a
positive for controlling wages growth, it has also meant that
many mining professionals are now struggling to find work,
according to a report by the Australasian Institute of
Mining and Metallurgy.
Figures released in October showed
that mining industry professionals are experiencing
unemployment levels double that of the national average, at
Geology professionals are facing a 15.1%
unemployment level, while those fresh into the industry face
over 26% unemployment.
The report also highlighted that workers are
expected to work longer hours, and in some cases have been
offered lower pay for the same job.
In WA, the workforce is expected to slip to
87,000 over the next ten years, according to a recent report
published in Mining Australia and put together by CME
and Deloitte Access Economics for the WA Chamber of Minerals
It is hoped, however, that the diversification of
Australia’s economy will help to take up some of
the employment slack. ABS data showed that investment in
non-mining industries increased by 4.9% in the last year and
although domestic manufacturing declined by 6.9%, building
construction, mainly in housing, was up by 6.5% over the same
Boom and dust
Another challenge now facing Australia is how to
avoid the legacy of ghost towns, which are often left in mining
areas once developers up sticks.
"History shows this classic mine and boom phase
is either followed by an evolution into multiple but related
industries, or a decline into ghost towns and tumbleweed,"
Jemma Green, a researcher at Curtin University said in a recent
interview with the Financial Times.
According to the "Pilbara 2050" report,
co-authored by Green, there are 87 ghost towns in WA alone,
most of which are in former mining districts.
The CME-Deloitte report predicted that the
proportion of fly-in-fly-out (FIFO) employees in
Australia’s mining workforce will increase from
60% of the workforce, to 63% by 2020 - although this is
expected to be due to a reduction in the overall size of the
workforce, rather than an increase in the number of FIFO
But WAGO’s Skipworth says that
morbid decline need not be the fate of mining towns and points
to the example of his own home town of Kalgoorlie (now known as
Kalgoorlie-Boulder). "In the 1960s, everybody said that this
would be a ghost town in 50 years, but today it’s
thriving," he said.
Kalgoorlie, located 595km east of Perth, was
founded in the late nineteenth century as part of the
Yilgarn-Goldfields gold rush and is still the base for a number
of precious metals operations, including the famous "super
pit", measuring 3.6km by 1.6km and capable of producing 850,000
oz pa gold, the area around Kalgoorlie is home to the Mt Marion
lithium-tantalum-mica project, which is being jointly developed
by Reed Resources Ltd and Mineral Resources Ltd.
In WA, government is investing in building new
towns through its flagship "Pilbara Cities" initiative. This
scheme aims to create two new 50,000-strong, permanent
communities at Port Headland and Karratha, in place of the
existing 15,000-person settlements used as base camps for the
region’s FIFO iron ore industry workforce.
"The aim is to establish new towns whose
existence is not dependent on the iron ore price," explains
The Pilbara scheme was hatched in 2010, at the
height of the boom and Skipworth’s optimism
notwithstanding, fears are mounting that the drop in mining
construction and decline in iron ore prices could threaten the
QRC, meanwhile, says that offering choice about
living and working arrangements is the most effective way of
ensuring the most satisfactory outcomes for mining
"The Queensland resources sector will continue to
offer workers the chance to live locally or commute," Roche
Independent research conducted for QRC involving
more than 2,000 resources sector employees confirmed that some
prefer to live locally, while others prefer to commute.
"It’s a matter of personal choice that the
industry must continue to cater for if it is to attract and
retain skilled employees," Roche added.
Politics and regulation
Australia’s mining industry has had
to battle against political and regulatory policies that have
been viewed by critics as confusing and interventionist.
In July 2014, the country formally repealed the
controversial Mineral Resource Rent Tax (MRRT), more commonly
known as the carbon tax. This tax was levied on 30% of the
"super profits" received from mining iron ore and coal in
Although the carbon tax did not apply to
industrial minerals, the measure was roundly criticised by the
resources sector and revoked after scarcely two years - a move
that won praise from miners but criticism from
The news was welcomed by WAGO, QRC, the NSW
Minerals Council and the Australian Mines and Metals
WAGO’s Kevin Skipworth told
IM that WA had put the tax behind it. "We
regard it as a blip for the industry that is best forgotten,"
"One of Australia’s biggest public
policy mistakes in decades has been fittingly consigned to the
dustbin with today’s repeal of the carbon tax
legislation," QRC said when the repeal was announced.
In February, it was revealed that the tax only
raised A$126m in the first six months of operation - a long way
off the A$2bn the Gillard government had predicted.
Nevertheless, the carbon tax debate raised
questions about the mining industry’s contribution
to Australia’s national coffers and evoked
assurances from the sector that it would acknowledge its
obligations as a key contributor to the fiscal budget.
"Through higher mining company tax receipts and
new fiscal measures, the industry will make a significant
contribution to the budget and new government programmes,"
Brendan Pearson, CEO of the Minerals Council of Australia, said
in a statement to the Australian senate when the MRRT was
The current pressures on Australia’s
mining industry mean that any new resource policies are likely
to be supportive rather than punitive, and as long as mining is
perceived to be the backbone of the country’s
economy, politicians seeking to wield influence will need to
pay careful attention to the sector.
Australia’s incumbent Liberal Prime
Minister, Tony Abbott, has been vocal in his support for the
mining industry, promising and delivering the repeal of the
carbon tax and outlining his vision of a new mining boom,
partly through the abolition of other levies.
"I think the mining boom could only come again
under a government which gets it (…) which abolishes all
these other unnecessary taxes," Rudd said in the run up to the
Australian general election in September 2013.
While his subsequent support for the
nation’s coal industry has won him criticism from
proponents of green energy in Australia and anti-FIFO
campaigners, others have acknowledged that the mining industry
will need to be eased through its transition to a new,
potentially less-prominent position in the
*Conversion made November 2014
Industrial minerals production in
Australia is an important producer of a number
industrial minerals and, importantly, has the reserves and
infrastructure to be a leading producer of many more (see
According to the US Geological Survey (USGS),
Australia produced 940,000 tonnes ilmenite in 2013, 13% of
total global output. Rutile production was at 450,000 tpa last
year, accounting for 6% of global capacity. Reserves were
estimated and 160m tonnes and 24m tonnes, respectively, in
The country further produces large amounts of
zircon, with Iluka being the largest producer.
Australia is also a significant lithium
(spodumene and pegmatite) producer. Talison Lithium (now
jointly owned by US-based Rockwood Holdings and
China’s Sichuan Tianqi Lithium Industries) has an
output of around 350,000 tpa hard rock lithium from its
Greenbushes mine in WA, which can be converted into
approximately 56,000 tonne lithium carbonate.
Also in WA, Galaxy Resources’ Mt
Cattlin pegmatite mine, which has been idled due to cost
pressures and is also in the process of being sold to Tianqi,
has the capacity to produce 137,000 tpa of lithium oxide.
The country has a modest magnesite industry, in
which largest producer is Queensland Magnesia (QMAG), now owned
by Sibelco. The company’s Kunwarara mine is
an open pit mine, with an output of around 3m tpa, according to
the USGS. The other producer is Causmag Ore Co., a subsidiary
of Orind Australia Pty Ltd.
Australia also has an operating rare earths mine
- Mt Weld, in WA, operated by Lynas Corp. which ships its ore
to Malaysia for processing.
Metals and mining companies under stress
The decline in Australia’s mining
fortunes has also been felt on the Australian Securities
The number of ASX-listed metals and mining
companies (excluding energy sector companies), which stood at
731 on 31 December 2013, had fallen to 718 as of 30 September
James Posnett, listings and business development
manager at the ASX, told IM that the exchange
has seen eight mining initial public offerings (IPOs) between
the start of the year and mid-November. "The rest of the
difference was either de-listings or backdoor listings - we had
19 backdoor listings, many of which were mining companies
changing into tech companies," he said.
"The overall IPO market is very strong, but
challenging for mining stocks, reflecting where we are in the
resources cycle," he added.
Posnett explained that even though mining cash
raised through IPOs is weaker year-on-year, the amount of
"follow-on capital" raised for the mining sector is up on
Number of listed companies by