Mining Industry Could Be Sent in for Another Dig; Some Say the Mining Boom Is over, but There Could Be More Demand over the Horizon, Writes Owen Jacques

Article excerpt

THIS is not a boom or a bust. The Australian mining industry is too complicated for that now.

For 10 years, extraordinary Chinese consumption has delivered national growth scarcely imaginable previously.

But with so much said of resources saving this country from economic oblivion, when the big money slowed, fear took its place.

In August BHP Billiton shelved its $14.7 billion Olympic Dam copper mine expansion in South Australia after mothballing two costly coal mines in Central Queensland earlier in the year.

Xstrata has hinted its $6 billion coal mine planned for Queensland's Wandoan could be next.

Every other operator is publicly throwing around ambitious plans to cut costs as workers face cancelled contracts or redundancies.

However, tidings of bad news do not mean the country's resources sector has sounded its death knell.

For those digging up the goods in those gilded years, the money being made was astonishing.

Huge profit margins were celebrated through mundane statements delivered to the Australian Stock Exchange.

So, where did this boom come from Co the one that lifted the Aussie dollar, wages and regional towns for a decadeCo and why did it cool down?

Anatomy of a boom

THE Federal Government's Bureau of Resource Energy Economics, experts on all things mining, named it the Millennium Mining Boom.

The bureau's chief economic and executive director Quentin Grafton explained why after the group released its quarterly statistics in September.

From 2002, Australia's resources industry was supercharged by a surge of demand from China and other emerging economies.

Mr Grafton said this spike was C[pounds sterling]the largest and longest since the gold rush of the 1850sC[yen], powering the national economy and keeping export prices at C[pounds sterling]historically high ratesC[yen] even now.

As rural-dwelling Chinese rushed to cities in the early 2000s, the superpower gorged on Australian resources to supply the roads, infrastructure and energy needed to cater for these arrivals.

Aussie exports to China rose in value by 10 times from $5 billion in 2002-03 to roughly $50 billion in 2010-11.

Australia just had to hold on.

Thanks to China, from 2002 to 2012:

Weekly household incomes in Western Australia and Northern Territory went up 66% and 56% respectively. For the rest of the country, it was closer to 30%.

In 2011-12, 250,000 worked in mining compared with 90,000 almost a decade earlier.

Iron ore prices climbed six times, metal-making or metallurgical coal increased fivefold and thermal coal tripled as China used more electricity.

Investment in mine projects or infrastructure went from $12 billion in 2002-3 to more than $82 billion last financial year.

On this point, BHP Billiton managing director Marius Kloppers said the flood of investment was because miners were struggling to keep up.

C[pounds sterling]After lean years in the '80s and '90s, the coal mining industry had almost no Cyinvestment-ready' projects in the pipeline,C[yen] he told the Brisbane Mining Club earlier this year.

C[pounds sterling]What eventuated as a result was a substantial supply lag that significantly increased commodity prices, which in turn enticed investment into the industry.C[yen]

Even with the spectre of a downturn looming, continued construction from that initial rush is still going up, and not due to peak until 2014.

At current rates, 2016 will still have three times the mining investment of 2002, even without new commitments. …