Mining investment will collapse by 40 per cent over the next four years, but the sector will grow in absolute terms as a result of greater production and maintenance requirements, according to a new report.
Industry analyst BIS Shrapnel said the mining sector will also claim a greater share of the national economy in their Mining in Australia 2014 to 2029 report.
However, “economic headwinds” will present a series of challenges to the industry as it shifts out of the investment and construction phase, including a high Australian dollar, weak growth in export demand, and relatively high costs.
Federal and state governments will also face increased pressure in the face of the challenges of a weak economy, with expectations to facilitate growth through infrastructure spending.
The report said mining investment peaked at $93.1 billion in 2013/14, but this will drop by 40 per cent while production surges ahead by 33 per cent over the same four year period, along with the corresponding maintenance and export growth.
Already mining production has grown 9.4 per cent to $164 billion, with the significant investments of the boom and rapid expansion, including major LNG projects, pushing future production growth and lifting the industry’s share of the GDP by 12 per cent.
BIS Shrapnel’s Infrastructure and Mining Unit senior manager Adrian Hart said investment was only held up by the gas industry, while spending fell sharply across coal, iron ore and other commodities.
“Indeed, without oil and gas, mining investment would have fallen 25 per cent in the last financial year,” he said.
“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.”
Exploration investment has fallen by 13.8 per cent to $6.6 billion in 2013/14, with gas contributing $4.6 billion to the total, however exploration levels are still quite high compared to historical conditions.
The key drivers for the mining industry will be production, operations and maintenance over the next five years, according to the report.
“Over the past three years, the real value of mining production has increased by 30 per cent. It now makes up 10 per cent of the national economy on this measure,” Hart said.
“Another 33 per cent growth is expected over the next five years, with the share rising to 12 per cent. In Western Australia, the value of mining production will overtake that of the entire Australian manufacturing sector during 2014/15. This is the new face of the mining boom in Australia.”
The key challenges to miners and contractors will be employment losses (forecast to drop by 20 per cent in WA over the next six years), closing operations, and the suffering prices of coal and iron ore, highlighted by report author Rubhen Jeya.
“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,” Jeya said.
“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 by withdrawing supply from the market through mine closures and reduced production, as well as the corresponding staff redundancies, this “natural attrition” will enhance the possibility for a turnaround on coal prices.
“Nonetheless, hard choices on operational viability need to be made. It won’t be an easy environment to navigate,” he said.
Contract mining is seeing increased pressure as a result of services being brought in-house by miners, but the report said this situation is unlikely to persist as production increases bring market recovery and increased demand for services.
Maintenance is expected to continue sustained growth, with a 7.5 per cent increase to $7 billion in 2013/14, and predictions for further increase to $9 billion by 2018/19, driven by ongoing improvements to operational efficiencies and the needs of expanded production plant and infrastructure.
Contract maintenance holds a 40 per cent share of the total, which is expected to remain steady over the next five years, rising from $2.8 billion to $3.7 billion by 2019.