MINING BOOM TO PEAK, SLOWDOWN AHEAD–DELOITTE ACCESS
A report by one of Australia’s leading private-sector economic forecasters says the mining investment boom is about to peak and a slowdown is on the horizon within the next two years.
The quarterly Deloitte Access Economics Business Outlook highlighted the broad trend of “the increasing realization that China is no a permanent gravy train. Its future growth is less certain-perhaps particularly so in the short term-and its long term growth may be less resource intensive than some commentators had earlier expected.”
“Costs have risen fast and potential profits are being dialed down as commodity prices deflate and analysts reassess both shorter and longer term commodity demand from emerging Asia. That doesn’t necessarily say that some of the next found of mega mining projects may not get the green light,” said Deloitte Access.
Among the major mining projects now underway are Newcrest’s A$1.9 billion expansion of the Cadia East gold mine near Orange NSW, Xstrata’s A$1.1 billion Ulan Underground coal mine; the $900 million upgrade of the Newcastle coal terminal; BHP Billiton’s $4.2 billion Caval Ridge coal project in Queensland and the five and sixth stages of its Rapid Growth iron ore project, costing $6.7 billion and $3.2 billion, respectively, in Western Australia; and Fortescue’s $4 billion Solomon iron ore project also in Western Australia.
Nevertheless, the report noted, “Mining companies are making it clear the current spike in investment is due to decisions taken a while back, whereas we are getting few new mining mega-projects across the line.”
South Australia’s resource-related economic pick-up is threatened in particular if the Olympic Dam expansion gets pushed backed further in time. “The state is blessed with a world-class resource in Olympic Dam, and the economics will stack up at some stage for the mining sector to invest something like $20 billion (perhaps even $30 billion) to bring that potential to fruition.”
“Yet the timing of the Olympic Dam go ahead-something that had seemed on the cusp of being announced for some time-has been put into question by recent developments. Some of those are simply broader economic trends such as the strength of the $A. Other things equal, the $A makes building and operating a mine in Australia a little less competitive versus alternatives elsewhere,” said the report.
In their analysis, Deloitte Access warns, “…The rising costs of resource sector construction and operation in Australia have combined with a slowdown in China to indicate that the current resources boom may peak earlier than expected,” Deloitte Access cautioned.
“This [mining] investment boom will crest and then ease beyond 2014 and 2015,” the report forecast. “…As we emphasis elsewhere is this issue of Business Outlook, unlike diamonds, mining booms aren’t forever. And the current boom is of course already pretty long in the tooth,” said the document.
“At the same time the imposition of new mining and carbon taxes (both defensible, but both arriving at a tricky time) has also weighed on the relativeness competitiveness of Australia as a destination for mining investment,” the report observed.
“To further shift the cost equation against mining in Australia versus mining in the rest of the world, add in the skill shortages that were always on the cards after both sides of politics took economically dumb migration policies to the last Federal election, and then soup that up by more recent fun and games over Enterprise Migration Agreements (which now look like being harder to actually achieve). The end result is that the labor cost penalties applying to mining operations in Australia have been on the rise,” said Deloitte Access.
Dorothy Kosich
The quarterly Deloitte Access Economics Business Outlook highlighted the broad trend of “the increasing realization that China is no a permanent gravy train. Its future growth is less certain-perhaps particularly so in the short term-and its long term growth may be less resource intensive than some commentators had earlier expected.”
“Costs have risen fast and potential profits are being dialed down as commodity prices deflate and analysts reassess both shorter and longer term commodity demand from emerging Asia. That doesn’t necessarily say that some of the next found of mega mining projects may not get the green light,” said Deloitte Access.
Among the major mining projects now underway are Newcrest’s A$1.9 billion expansion of the Cadia East gold mine near Orange NSW, Xstrata’s A$1.1 billion Ulan Underground coal mine; the $900 million upgrade of the Newcastle coal terminal; BHP Billiton’s $4.2 billion Caval Ridge coal project in Queensland and the five and sixth stages of its Rapid Growth iron ore project, costing $6.7 billion and $3.2 billion, respectively, in Western Australia; and Fortescue’s $4 billion Solomon iron ore project also in Western Australia.
Nevertheless, the report noted, “Mining companies are making it clear the current spike in investment is due to decisions taken a while back, whereas we are getting few new mining mega-projects across the line.”
South Australia’s resource-related economic pick-up is threatened in particular if the Olympic Dam expansion gets pushed backed further in time. “The state is blessed with a world-class resource in Olympic Dam, and the economics will stack up at some stage for the mining sector to invest something like $20 billion (perhaps even $30 billion) to bring that potential to fruition.”
“Yet the timing of the Olympic Dam go ahead-something that had seemed on the cusp of being announced for some time-has been put into question by recent developments. Some of those are simply broader economic trends such as the strength of the $A. Other things equal, the $A makes building and operating a mine in Australia a little less competitive versus alternatives elsewhere,” said the report.
In their analysis, Deloitte Access warns, “…The rising costs of resource sector construction and operation in Australia have combined with a slowdown in China to indicate that the current resources boom may peak earlier than expected,” Deloitte Access cautioned.
“This [mining] investment boom will crest and then ease beyond 2014 and 2015,” the report forecast. “…As we emphasis elsewhere is this issue of Business Outlook, unlike diamonds, mining booms aren’t forever. And the current boom is of course already pretty long in the tooth,” said the document.
“At the same time the imposition of new mining and carbon taxes (both defensible, but both arriving at a tricky time) has also weighed on the relativeness competitiveness of Australia as a destination for mining investment,” the report observed.
“To further shift the cost equation against mining in Australia versus mining in the rest of the world, add in the skill shortages that were always on the cards after both sides of politics took economically dumb migration policies to the last Federal election, and then soup that up by more recent fun and games over Enterprise Migration Agreements (which now look like being harder to actually achieve). The end result is that the labor cost penalties applying to mining operations in Australia have been on the rise,” said Deloitte Access.
Dorothy Kosich
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