The notion that the Australian mining industry is digging
itself out of a hole has become something of a cliché
over the last few years. Although it is a convenient expression
for describing a country that lost its shirt after the collapse
of the global resources boom, it is not an altogether accurate
depiction of what Australia’s resource sector is
trying to do.
"People aren’t talking about recovery anymore,
so much as stability," Ian Chalmers, managing director of
diversified miner, Alkane Resources Ltd, told
IM.
|
Long road ahead: Commentators on the
Australian mining sector believe
the industry may struggle for some time yet.
(Source: Island Home)
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Alkane is developing the Dubbo zirconia project (DZP) in New
South Wales (NSW), from which it expects to produce rare earths
and hafnium as well as zirconia. It also operates the Tomingley
gold project, from which a modest but steady stream of revenue
help keeps its other activities afloat.
Like many seasoned Australian explorers, Chalmers is an
indomitable optimist. "I think the mining industry is in good
shape," he said. "We’ve come out of a construction
boom, which is what caught everyone’s attention
(…) but a lot of companies are working their way through
it – we haven’t seen many company
failures."
This point is difficult to argue with. Although headlines in
the Australian and global media tend to fixate on the decline
in iron ore prices, asset sell-offs and idle drilling rigs
since fallout from the collapse of the commodities supercycle,
the Australian Securities Exchange (ASX) has seen fewer mining
company de-listings (or threatened de-listings) than
Canada’s Toronto Venture Exchange (TSX-V) in the
last two years. Most juniors seem to be lying low, rather than
throwing in the towel.
Furthermore, the nosedive in the cycle has yielded some
positives for Australia’s mining sector. The low
value of the Australian dollar benefits companies signing sales
contracts denominated in US dollars and the abandonment of
mining projects has freed up labour, expertise and drill rigs
for others. The country is also regaining control of its cost
structures, which many believe climbed to unsustainable levels
at the height of the mining boom.
Politically, the country has had yet another change in its
leadership in the last year, however few are concerned about
the stability of Australia’s governance.
"We’ve had a change of Prime Minister, not a
change of government," said John Atkins, agent general for the
Western Australian Government Office in Europe (WAGO). "Broadly
speaking we expect policies towards the resource sector to
remain fundamentally the same – maybe with some
tweaks."
Others are less equivocal. "The latest change of leadership
in Australia, with a pro-business focus and desire to
positively engage with north and Southeast Asia, has enhanced
Australia’s attractiveness to investors," Greg
Baynton, managing director of investment advisory group, Orbit
Capital, told IM.
As well as his capital raising function, Baynton is also
executive director of Graphitecorp Ltd, a young exploration
company involved in the development of the Mount Dromedary
graphite deposit in Queensland. At the time IM
went to press, the company was on the cusp of its initial
public offering (IPO) on the ASX.
Like Chalmers, Baynton points to the fact that the cool-down
in construction has deepened and cheapened the pool of
equipment and skills for those that remain in the resources
business.
"There is a greater availability of labour and expert
consulting services than at any time in the past three years,
plus an abundance of idle drilling rigs and a reduction in
exploration costs," he said.
Bringing costs down
When the last Australian mining boom was in its ascendancy,
average wage growth in the country stood at more than 4% per
annum. This figure is reputed to have been even higher in the
mining sector, since wage inflation on the service industry-led
east coast rose a lot less rapidly, bringing down the
average.
Other costs, such as contracting and equipment, also
increased exponentially and miners committed themselves to
expenditure levels that were perilously vulnerable to a drop in
mineral prices.
According to Australian government figures released in
August this year, the pace of wage growth in the country has
fallen back to 2.3%. For the mining sector, this softening of
labour costs is vital if the industry is to adapt to lower
sales revenues.
"Industry is getting used to $50-$60/tonne as a price for
iron ore," Atkins told IM. "These prices are
aligning with historical levels and companies are having to
work out how to run their businesses on this basis."
Atkins admits that the readjustment to more moderate
commodity prices has been painful for miners, but notes costs
are now coming down and that there has been a real and
necessary reining in of spending.
|
Liberal Party MP Malcom Turnbull (far
left) replaced
Tony Abbot as Australia’s Prime Minister
in September
2015, in a political coup of the kind that has
become
a characteristic of Australian politics.
Malcolm Turnbull MP
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Although few dispute that mining and related support jobs
were shed fairly liberally soon after commodity prices came off
the boil, overall, employment in Australia has remained
reasonably steady. Government figures for unemployment in
September showed that the jobless rate stood at 6.2%, unchanged
from the previous month, and up by more than 230,000 jobs on a
year ago.
Australia has also been able to export much of its mining
expertise abroad, particularly to Africa, where ASX-listed
companies are among the best represented in the
continent’s exploration sector.
Western Australia
As Australia’s biggest mining state, Western
Australia (WA) tends to hog the column inches when it comes to
news, good or bad, about the Australian resources sector.
Its economy has historically been heavily dependent on the
commodities it produces and mostly ships out to foreign
markets. The state’s economic growth, measured as
gross state product (GSP) has been hit hard by falling demand
for iron ore in particular.
WA’s real GSP rose 5.5% in the financial year
2013-14, above both the previous year’s growth of
4.6% and the 10-year average of 4.9%. However, this figure is
expected to fall back to 3.25% in the financial year 2014-15
and to 2% the year after – the slowest pace of
expansion in decades.
The state was stripped of its AAA+ credit status by ratings
agency Standard and Poor’s (S&P) in 2013 and
in April this year, it looked like its AA+ status could be
under threat. Although WA has since pulled itself off
S&P’s "negative watch" list, in mid-October,
Moody’s Investor Services issued a report warning
that the state’s fiscal performance will be
"challenged" by low commodity prices.
"[WA’s] plan to eliminate its budget deficit by
2019 will largely depend on it achieving targeted cost cuts, as
a further slowdown in revenues remains a risk,"
Moody’s said in its report, entitled "Western
Australia Confronts a Slowing Resource Sector", highlighting
slowing Chinese demand for WA commodities.
Moody’s did however point out that "rising
exports of iron ore as new production comes on line will
partially offset this weakness over the medium term", adding
that WA’s budgetary flexibility on tax and
spending will support its plan to move into a surplus by
FY2018/19. "WA will need political resolve to hit its fiscal
targets. The state’s ability to reduce spending
and manage a more volatile revenue base will be critical to
achieving its fiscal targets," it said.
Atkins is stoical about the moderating pace of economic
growth and said that the slowdown reflects a settling,
following the frenzied pace of expansion in its mining sector
up until 2012. "From a WA perspective, we’re just
progressing through the cycle. Both iron ore and gas have been
through a significant investment phase and we are now at a
stage where that cycle is maturing," he says.
"Neither Rio Tinto nor BHP have finished their projects
– people keep talking like it’s over, but
it’s not over yet. We are shifting from a period
of intensive development to long-term production, in iron ore
and gas. Once these major projects are complete, we will have
30-40 years of production just from the latest phase of
investment."
Most of what WA exports is in crude, bulk form, commanding
lower prices than for refined materials. From an industrial
minerals perspective, two relatively high profile mining
projects with mining sites in WA have chosen to locate their
beneficiation capacity abroad.
Rare earths miner Lynas Corp., which operates the Mount Weld
Mine south of Laverton in south-central WA, capable of
producing up to 66,000 tpa rare earths concentrate, chose to
locate is refining facility – the Lynas Advanced
Material Plant (LAMP) – in the Malaysian port city of
Kuantan.
Altech Chemicals Ltd, which is developing the 65m tonne
Meckering aluminous clay deposit 130km to the east of Perth,
has likewise opted to locate its further processing operations
for producing high purity alumina (HPA) Malaysia, in the city
of Johor.
Speaking to IM, Jingyuan Liu,
Altech’s general manager of operations, outlined
the company’s reasons for building its processing
capacity abroad. "Malaysia is a modern and politically stable
country, English is the business language and it is close to
both Australia and the Asian markets (…) Also, Johor has
a broad industrial base, a large pool of skilled workers and
overall operating costs are around 40% less than those in
Australia," he said.
Although a number of mining companies companies, including
leading mineral sands miner Iluka Resources Ltd, which owns a
number of deposits in WA’s Perth Basin, do process
their material locally prior to exporting it, there is scope
for much more of this activity.
Atkins says that the WA government would welcome an increase
in beneficiation capacity in the state. "WA would like to see
more mineral processing going on locally but that
hasn’t happened so far."
Technology and big data
Although processing capacity isn’t taking off
in Australia, other types of technology seem to be flourishing
in the downturn. These include new laser mineral analysis for
enhancing exploration and driverless trucks, as recently touted
by Anglo-Australian miner, Rio Tinto Plc, as well as satellites
and remote sensing applications developed by mining technology
specialists.
Consultancy service PricewaterhouseCoopers (PwC) has been
investigating how large amounts of "big data", collected during
mining projects can be used more effectively to yield
outcomes.
"The key process with big data is one of turning data into
information and ultimately into actionable insights, rather
than just collecting and storing data for its own sake," says
Chris Stevens, WA Consulting Mining leader for PwC.
|
Australia is a famous mining nation,
home to sites
such as the Kalgoorlie-Boulder Superpit gold
mine.
(Source: Matthew Perkins)
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"The main difference between traditional data and big data
is what we often refer to as the 'three Vs’,
namely the volume, velocity and variety of data. For
example, a modern haul truck may have in excess of 200 IP
addresses each transmitting information constantly to
a remote operations centre. When extrapolated over a large
mining operation with tens of haul trucks, this alone creates a
powerful data challenge."
Productivity, especially heavy mining equipment fleets, is
one of the chief areas where miners have been focusing on the
insights generated by big data. A recent PwC study indicated
that of miners surveyed, 92% of companies operating in the top
quartile of mine fleet productivity use, analyse and
communicate their fleet productivity data on a daily
basis.
Although such sophisticated big data and data analytics
systems sound expensive, Stevens says that PwC has seen
many cases where a data strategy can be developed in
ways that have a significant return on investment at a cost
affordable to small mining operations.
"Mining companies have traditionally been very willing to
adopt new technologies, but often these technologies have been
developed by individuals within the industry to solve very
narrow problems," said Stevens. "Excellent examples of these
technologies would be the software used in resource and reserve
estimation and mine design and planning. Adoption of
technologies developed outside of the mining industry has been
hit and miss, because they are often poorly suited to the
inherent complexities of the mining industry or they have
failed to adequately convey benefits to potential mining
customers."
Industrial minerals
For a long time, Australia’s industrial mineral
industry has been the poor relation of its iron ore, coal, gold
and natural gas sectors.
The country hosts an array of high quality non-metallic
mineral deposits, including aluminous clay, barite (barytes),
graphite, lithium, mineral sands, rare earths and silica.
However, to date, many of these resources have been
unexploited, despite having been identified, owing to their
relatively low value and a greater emphasis on metallic
minerals.
Given the current dip in the resource economy and fragile
investor sentiment towards mining, it might seem a risky time
to launch new mining ventures – particularly ones
aimed at niche markets.
Orbit Capital’s Baynton however believes that
the time is opportune for a new industrial mineral project.
"There are investors, governments, farmers and environmental
lobby groups who are fed-up with energy projects –
such as coal, unconventional and conventional gas. In relation
to industrial minerals projects, I am hearing government
representatives and investors say 'at least it’s
not coal or petroleum – we’re
interested,’" he told IM.
He also pointed out that state governments are generally
keen to encourage new projects that will pay royalties and
create employment in their jurisdictions. "I think there are
improving opportunities and support for new boutique industrial
minerals projects, particularly supplying niche markets. Now is
an unusually favourable time to be starting a new project,
given the adjusted cost structure, availability of drilling
rigs, labour, services and favourable governments."
Chalmers however believes that the success of Alkane, to
date, lies in the fact that the company has a polymetallic
project, capable of yielding a diverse revenue stream, and
because it has been in the business for some time. "We did the
feasibility study [for the DZP] back in 2002, when rare earths
prices were even worse than they were now," he said. Alkane has
been running a pilot plant on Dubbo ore for the last seven
years, enabling it to ship samples to customers and take its
time about exacting improvements.
Even though Alkane is well ahead of many of its peers,
Chalmers does not expect the DZP to reach full production until
2020, with project financing due to be settled over the course
of the next year or so. He is not relying on a return to 2011
spike level prices for rare earths either, and commentators on
other commodities are beginning to present similarly
conservative outlooks.
"In the iron ore market, while demand side increases could
lead to increased prices, given the increase in supply that has
come online in the past two-to-three years, any effects of
say, a stimulus in China, would likely be significantly more
muted than the highs seen in 2011-2012," said
PwC’s Stevens.
While buoyant about Mount Dromedary, Baynton is also sober
about the prospects for Australian minerals on the whole. "Even
with the falling costs of production here, because of
supply-demand imbalances and sentiment towards major energy and
resources projects, almost everything else in the mining and
energy sectors looks very difficult for at least the next
year," he said.
Australia’s industrial mineral
mines and exploration projects
|
Mineral
|
Company
|
Project name (exploration project
[EP] or mine [M])
|
State/Territory
|
Aluminous clay
|
Altech Chemicals Ltd
|
Meckering (EP)
|
WA
|
Antimony
|
Anchor Resources Ltd
|
Bielsdown (M)
|
NSW
|
Antimony
|
Artemis Resources Ltd
|
Eastern Hills (EP)
|
WA
|
Antimony
|
Bracken Resources Ltd
|
Hillgrove (M)
|
NSW
|
Antimony
|
Mandalay Resources Ltd
|
Costerfield (M)
|
VIC
|
Antimony
|
Northwest Resources Ltd
|
Blue Spec (EP)
|
WA
|
Antimony
|
Precious Metal Resources Ltd
|
Halls Peak (M)
|
NSW
|
Barite (barytes)
|
Unimin Australia Ltd
|
Oraparinna (M)
|
SA
|
Bauxite/mineral sands
|
Metallica Minerals Ltd
|
Cape York (EP)
|
QLD
|
Bentonite
|
Australia Pacific Coal Ltd
|
Mantuan Downs (EP)
|
QLD
|
Bentonite
|
Arumpo Bentonite Pty Ltd
|
Arumpo (M)
|
NSW
|
Bentonite
|
Minerals Technologies Inc./AMCOL
|
Gurulmundi (M)
|
QLD
|
Bentonite
|
Sibelco
|
Gurulmundi (M)
|
QLD
|
Fluorspar
|
Niuminco Group/TNT Mines Ltd
|
Moina (EP)
|
TAS
|
Graphite/barite/magnesite/phosphate
|
Archer Exploration Ltd
|
Campoona/Sugarloaf/Edicara/Eudunda/Leigh
Creek/Worlds End/Australia Plains (EP)
|
SA
|
Graphite
|
Buxton Resources Ltd
|
Yalbra (EP)
|
WA
|
Graphite
|
GBM Resources Ltd
|
Mt Margaret (EP)
|
TAS
|
Graphite
|
Graphitecorp. Ltd
|
Mt Dromedary (EP)
|
QLD
|
Graphite
|
Lamboo Resources Ltd
|
McIntosh (EP)
|
WA
|
Graphite
|
Lincoln Minerals Ltd
|
Kookaburra Gully (EP)
|
SA
|
Graphite
|
Lithex Resources Ltd
|
Plumbago/Munglinup/Moolyella/Shaw
River/Pilangoora/Furniss East/Eyre Point
(EP)
|
NSW/WA/SA
|
Graphite
|
Sayona Mining Ltd
|
East Kimberley (EP)
|
WA
|
Graphite
|
Valence Industries Ltd
|
Uley (M)
|
SA
|
Lithium
|
Galaxy Resources Ltd (Sichuan Tianqi Lithium
Industries Inc.)
|
Mt Cattlin (M)
|
WA
|
Lithium
|
Lithium Australia
|
Pilangoora/Yilgarn Craton (EP)
|
WA
|
Lithium/mineral sands
|
Neometals Ltd
|
Mt Marion/Barrambie (EP)
|
WA
|
Lithium
|
Pilbara Minerals Ltd
|
Pilangoora (EP)
|
WA
|
Lithium
|
Talison Lithium Ltd (Sichuan Tianqi Lithium
Industries Inc./Albemarle Corp.)
|
Greenbushes (M)
|
WA
|
Magnesite
|
Beacon Hill Resources Plc
|
Arthur River (EP)
|
TAS
|
Magnesite
|
Causmag International Ltd
|
Thuddungra (M)
|
NSW
|
Magnesite
|
Queensland Magnesia Ltd (Sibelco)
|
Kunwarara (M)
|
QLD
|
Magnesite
|
Thesally Resources Pty Ltd
|
Rum Jungle (EP)
|
NT
|
Mineral sands/rare earths
|
Alkane Resources Ltd
|
Dubbo Zirconia Project (EP)
|
NSW
|
Mineral sands
|
Cristal Mining Australia Ltd
|
Atlas-Campaspe/Kemerton/Australind
(EP/M)
|
NSW
|
Mineral sands
|
Diatreme Resources Ltd
|
Cyclone (EP)
|
WA
|
Mineral sands
|
Gunson Resources Ltd
|
Coburn (EP)
|
WA
|
Mineral sands
|
Iluka Resources Ltd
|
Balranald/Tuntup/Cataby/Yoganup/Jacinth
Ambrosia/Atacama/Sonoran/Tripitaka/Typhoon
(M/EP)
|
NSW/WA/SA
|
Mineral sands
|
Image Resources Ltd
|
Boonararring/Atlas/Eucla
Basin/Chandala/Woolka/Winooka
|
WA
|
Mineral sands
|
MZI Resources Ltd
|
Keysbrook/Tiwi Islands
|
WA/NT
|
Mineral sands
|
Sheffield Resources
|
Dampier/Thunderbird (EP)
|
WA
|
Mineral sands
|
Sibelco
|
North Stradbroke Island (M)
|
QLD
|
Rare earths
|
Arafura Resources
|
Nolans (EP)
|
NT
|
Rare earths
|
Hastings Rare Metals Ltd
|
Yangibana (EP)
|
WA
|
Rare earths
|
Jaguar Minerals Ltd
|
Mt Jukes (EP)
|
|
Rare earths
|
Lynas Corp
|
Mt Weld (M)
|
WA
|
Rare earths
|
Northern Minerals Ltd
|
Browns Range (EP)
|
WA
|
Rare earths
|
Spectrum Rare Earths
|
Skyfall (EP)
|
NT
|
Silica/HPQ
|
Creswick Quartz Ltd
|
Creswick (M)
|
VIC
|
Silica
|
Tasmanian Advanced Minerals Ltd
|
Wynyard (M)
|
TAS
|
|