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Australia Mining Report Q2 2009
Business Monitor International, May 2009, Pages: 57
Australian mining is currently dominated by China’s increased buying activity across the sector. As this report went to press, the government was considering Chinalco’s US$19.5bn bid to increase its stake in Rio Tinto, alongside China Minmetals Corporation’s AUD2.6bn bid for OZ Minerals and Hunan Valin Iron & Steel Group’s AUD1.2bn for a 16.5% stake in Fortescue Metals Group. On page 8 of this report, we examine some of the reasons why China is buying so many Australian assets, and what that will mean for the industry in the years ahead.
Hosting a gamut of metals and minerals including iron ore, nickel, bauxite/aluminium, copper, gold, silver, uranium, diamond, opal, zinc, coal and oil shale as well as petroleum and natural gas, Australia continues to be a world leader in mining. Australia lies within the top five for most of the world’s key minerals. It is the world’s leading producer of bauxite and alumina, ilmenite, rutile and zircon, synthetic rutile and tantalum. It ranks second for production of iron ore, lead, uranium, diamonds (by weight) and zinc. It is the third-largest producer of silver and nickel and has also now become the world’s third-largest producer of gold, behind China and South Africa. The country is the world’s largest exporter of alumina, black coal, iron ore, lead and zinc, and figures second in the export of uranium. The mining industry is a significant contributor to Australia’s GDP and the majority of mining activity takes place within the country’s largest state, western Australia. The state’s mining sector is set to benefit from the election of a more business-friendly Liberal government in the wake of September 2008’s early election.
Owing to its exceptional geology, Australia is home to some of the biggest names in the global mining industry. Multinationals operating in the Australian mining industry include locals BHP Billiton and Newcrest, Rio Tinto, US-based Alcoa, China-based Aluminium Corporation of China (Chinalco) and Switzerland-based Xstrata.
Foreign investment rules are liberal and encourage inward investment. Mergers and acquisitions (M&As) are subject to scrutiny by the Australian Competition and Consumer Commission (ACCC). The country has well-defined regulatory bodies and a well-established legal system that can be described as investorfriendly.
In the case of specific mineral exploitation, the authorities now consider uranium mining proposals on a case-by-case basis. BHP And Rio Tinto Shed Jobs
Both BHP Billiton and Rio Tinto continue to shed jobs as they seek to cut costs. Early in 2009, BHP Billiton announced that it is to cut 6,000 jobs over the year and close its huge Ravensthorpe nickel mine in Australia. BHP had been one of the few companies maintaining production amid claims that sales and volumes were holding up. Of the 6,000 job cuts, approximately 70% will come from independent contractors. In March 2009, BHP sacked 85 workers from its Olympic Dam operation in South Australia and refused to rule out further job losses. Meanwhile, in December 2008, Rio Tinto announced it would be cutting 14,000 jobs as it plans to cut its debt levels by US$10bn by the end of 2010. As part of planned reductions in capital expenditure, the mining giant is also mothballing a number of projects, including a US$1.5bn extension to the Argyle diamond mine in Western Australia.
New WA Government To Boost Uranium Sector
In November 2008, the new Liberal government in Western Australia lifted the ban on mining uranium, which should come as a significant boon to the mining sector. There is strong demand for uranium as countries such as China attempt to convert to nuclear power on a large scale. That said, uranium companies have warned it will take some time for production to get underway.
Industry Forecast
The author's forecasts for Australia’s mining industry are discouraging, with the industry estimated to have contracted by almost 5% in real terms in 2008. Meanwhile, we forecast an average annual reduction of almost 2% in real terms for the remainder of the forecast period. The main reason for this disappointing outlook is the global slump in commodity prices. However, Australia has also been particularly hard hit by restructuring at the world’s largest miners, BHP Billiton and Rio Tinto. By 2013, BMI forecasts that Australia’s mining industry will represent only 3.08% of GDP, compared with 4.26% in 2007.
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