Category: Mines and Quarry

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.

Investors are ditching iron ore miners as the price of the commodity tumbles to a new five-year low of $US70 a tonne.

This is the third record low in as many days for iron ore which has now shed 50 per cent of its value since the start of the year.

The week’s free fall has spelt more bad news for iron ore miners.

Fortescue Metals Group shares have fallen by 55 per cent since February and closed $2.74 yesterday, a level not seen since the global financial crisis.

BC Iron and Mt Gibson also saw double digit percentage falls and are trading at 56 cents and 38 cents respectively.

BHP Billiton and Rio Tinto were cushioned from major sell-offs because of their lower operating costs and diversified portfolios, but fell by 2 per cent yesterday.

The fresh low comes as data out of China shows the average price of new houses slumped for the sixth month in a row.

Deltec chief investment officer Atul Lele said this means that housing supply is outstripping demand which is bad news for the country’s steel sector, AFR reported.

“We believe it represents the biggest risk to the Chinese and global economy,” Lele said.

Citigroup predicts iron ore will fetch $US72 a tonne for the first quarter of 2015 and crash to lows of $US60 a tonne in the third quarter before lifting again slightly by the end of the year.

The slump in prices has already seen two iron ore operations in Australia close with fears there are more to come as break-even costs are being tested.

Western Australia’s budget is also expected to have a multi-billion hole where iron ore royalty payments used to live as a result of the falling price.

This caused Premier Colin Barnett to hit out at BHP and Rio last month, accusing them of flooding the market with new supply which has forced prices down.

Barnett said he does not want to see iron ore mining in WA to revert to a duopoloy.

“By their own admission, the major companies are pushing increasing volumes on a month to month basis into the market, very conscious that is contributing to price falls in an already depressed market and very conscious by those quotes as an example of the impact this will have on smaller iron ore producers,” the premier said.

Speaking at a conference in Sydney, Rio Tinto boss Sam Walsh said Barnett shouldn’t complain about the company’s strategy to increase production seeing as the government signed off on the plan.

“I’m not sure where Colin is coming from in that given that we’ve been very clear in our plans and our expansions are approved by government,” Walsh said.

Western Australia’s environmental authority has approved Rio Tinto’s plan to build a massive new iron ore mine in the Pilbara.

The Koodaideri mine would be located 110 km north-west of Newman and is expected to have a 30 year life span.

According to documents filed by Rio subsidiary Mount Bruce Mining, the mine is expected to produce 35 million tonnes of ore a year, before a ramp up by 2030 which will see that figure increase to 70 million tonnes a year.

The mine would require a new 167 km railway to be built in order to connect the mine to Rio’s Dampier-Tom Price line.

New roads, power sources, water infrastructure and FIFO village facilities would also be need to be constructed.

Up to 2,000 people would be needed to build the mine while 700 workers would be required for the mine’s operation.

The estimated price tag for the mine and rail development is $US3.2 billion ($3.5 billion).

The Environment Protection Authority said the mine could go ahead subject to 14 conditions including measures to protect local bat and quoll colonies.

It also wants to ensure that the mine does not increase the spread of asbestos in the environment.

The proposal is open to a two-week public appeals period before being sent to WA’s Minister for Environment Albert Jacob for final approval.

The EPA’s approval comes one the same day as the price for iron ore hit its lowest point in five years.

Dropping 4 per cent overnight, the commodity is trading at $US72.10 a tonne.

However, with a production cost of just over $US20 a tonne, Rio is shielded from price drops, and plans to expand its exports out of the Pilbara from the current 270 million tonnes a year to 360 million tonnes a year.

A final investment decision for Koodaideri is not expected until at least 2016, as the company focuses on upping production through less expensive brownfield expansions.

Shenhua’s huge Watermark Coal project has been recommended for approval by the NSW Department of Planning and Environment.

The open-cut coal project, located 25 km south-east of Gunnedah, will produce 10 million tonnes of coal per annum if approved, and employ more than 600 people.

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BHP will be looking at the prospect of trialling automated haul trucks at the Mount Arthur coal mine, a decision that will be finalised in the next 12 months.

If implemented, this would be the first trial of autonomous mining haul trucks in NSW, which was flagged by BHP coal boss Dean Dalla Vale early this year.

BHP has already been testing driverless haul trucks at their Jimblebar iron ore mine in Western Australia for more than 12 months, and will soon ramp up the fleet from nine to 12 trucks.

A BHP spokesperson told Australian Mining Mt Arthur is on the cusp of beginning an identification study into the requirements of such a trial, such as examining potential suppliers, equipment, and equipment modifications to suit the mine.

The identification study will be completed by the end of FY15, after which BHP Mt Arthur will determine whether to proceed with the trial.

“If a decision is made to go forward with a field trial, the autonomous truck project would be conducted by a dedicated project team in an area of the mine pit separate from main operations,” the spokesperson said.

“No decision has been made, but we will continue to keep our employees updated.”

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The Planning and Assessment Commission recently approved an extension of the Mt Arthur coal mine operations until 2026, on the grounds that it would facilitate employment of up to 2600 workers, Newcastle Herald reported.

NSW member of the legislative council for the Greens Jeremy Buckingham said the prospect of a new trial indicated “the absolute hypocrisy of these multinational coal companies”.

“They use the spectre of job losses to demand mining approvals, while at the same time act to implement measures that cut employment,” Buckingham said.

Last week Mt Arthur announced 150 jobs at the mine would be cut, bringing the number of redundancies at the mine to 500 for the past 12 months.

Mt Arthur currently runs four crews of haul truck drivers, with 80 trucks operating each shift.

The world’s biggest iron ore producer, Vale, has announced its intention to expand production despite a falling price. This follows similar announcements by Rio Tinto and BHP.

This expansion in production by the three largest iron ore exporters in the world, accounting for over 60% of the market, is puzzling and it may not be in the best interests of the resource owners in Western Australia and Australian taxpayers generally.

Why would firms pursue such a strategy? Western Australian Premier Colin Barnett has suggested the big miners may be flooding the market to reduce the price and drive higher-cost suppliers from the market.

Indeed, Vale’s CEO has indicated the objective is to displace competitors’ quantities. This is plausible as there are many producers that are marginally profitable at current world prices. They will likely exit the market if prices are reduced further.

Given the big miners’ market share, it stands to reason that higher production volume will have a negative impact on iron ore prices. Perhaps the big miners hope that once higher cost producers exit the market, prices may rise again.

However, there many reasons to suggest such a view is too simplistic and this strategy will not work.

Crucially, iron ore production is by and large a mining and extraction activity. This means underground resources do not disappear if a high-cost miner exits the market. Equally, once resources are mined, extracted and sold at a potentially low price, the resources are gone and its owners will not be able to enjoy future higher prices.

It may make sense for the big miners to ramp up production now, despite causing a reduction in prices, if there are particular reasons to believe the demand for iron ore will decrease in the future. If this were the case, then it might be better to sell now, even if at reduced prices, vis-à-vis selling in the future at even lower prices. But this is unlikely given that many countries in Asia, Africa and South America will still need steel to catch up to the level of development of richer countries.

Is this just supply and demand at work? Is it a case of lower-cost producers vying for larger market shares even if this happens at the expenses of these companies’ shareholders? Unfortunately this ignores the interests of those who own the resources.

Iron ore resources are owned by the state (that is, by the people). The economic rents – the income derived from the ownership of a resource that exists in fixed supply – are captured in two different ways in Australia.

The Western Australian government charges (ad valorem) royalties on the value of iron ore sales. By increasing production, causing prices to fall, the big miners’ action will affect the value of the royalties captured by the government. Even if the big miner’s revenue rises due to quantities rather than prices, royalties may still fall if other Western Australian producers exit the market.

Similarly, Australians at large benefit from the tax revenue collected by the federal government. As the corporate tax is levied on accounting profits, lower iron ore prices may mean lower tax revenue as well.

Again, even if prices increase in the future, Australian governments will not be able to fully capture additional revenue as many high-cost producers are located in other jurisdictions.

Mining companies own capital that can be driven harder, as well as owning the mining rights. Managers may be tempted to increase production and enjoy a higher return on capital even at the expense of not maximising the value of the resource over the life of the mine.

The public, however, captures the value of the resources through ad valorem royalties and the corporate tax system. This means the public would benefit from actions that maximise the value of the resources over the life of the mine.

The challenge for the big miners is how to overcome this temptation of any short-term gains from increasing production to capture market share, at the expense of reducing prices further, resulting in a reduced value for the resources over the life of the mine. The challenge for governments, on behalf of the resource owners, is to continue to challenge the big miners’ thinking as Premier Barnett has done.

The Conversation

Flavio Menezes does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

This article was originally published on The Conversation. Read the original article.

Iron ore prices have been forecast to continue their decline, with expectations of a slump to as little as 70 US dollars per tonne, following falls to $77 this week.

A Western Australian parliamentary inquiry into the mental health impacts of Fly in fly out rosters has heard that workers avoid using antidepressants to pass pre-employment and random drug tests.

And Chevron has made plans to house up to 1200 workers on a new floating accommodation facility, which has been dubbed the ‘floatel’.

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Northparkes is a copper and gold mine located 27 kilometres north west of Parkes in the Central West of New South Wales, Australia. Northparkes is a joint venture between China Molybdenum Co., Ltd (CMOC) (80%) and the Sumitomo Groups (20%).

The majority of our employees and their families live in the Parkes Shire, a diverse municipality centered in the town of Parkes, a thriving country town of about 12,000 residents. Parkes’ primary industry is agriculture but growth over recent decades from industrial, transport and mining sectors now means there is a diverse economic base in the town.

Northparkes operates underground block cave mines on its mining leases. Northparkes was the first in the country to use a variation of the cost-effective block cave mining technique in its underground operations. Underground block cave operations include the E26 Lift 2 and Lift 2 North (Lift 2N) block caves as well as the E48 block cave project. Open cut mining campaigns have been undertaken in the E26, E22 and E27 pits

Northparkes’ ore is processed on site to produce a high-grade copper concentrate which is then transported by road train to the Goonumbla rail siding approximately 13 kilometres from the mine. The containers are then placed on to a train and transported to Port Kembla, south of Wollongong, where the concentrate is then shipped to customers primarily in Japan, China and India.

Northparkes Mines owns 6000 hectares of land around the mine, of which the mining lease covers 1630 hectares. The remaining land is actively farmed using best practice farming methods developed and adopted to maximise productivity and quality while conserving water and soils.

As of 1 December 2013 the majority owner of Northparkes Mines is CMOC. Northparkes is CMOC’s first international asset. For more information on CMOC please read the factsheet below.

CMOC-Factsheet-(2)

注：该矿山与Sandvik Mining & Construction已合作20年。