Mining investment: Regulatory certainty and reducing production costs key
Posted : Monday, October 29, 2012
South Australia has a chance to build its mining industry in a
way that fosters other industries rather than cannibalises them
while the Olympic Dam expansion is "on hold", a CEDA mining forum
Hosted by the ABC's Tony Jones, the Q&A style forum on the
future of the resources boom heard South Australia had the
opportunity to learn from Western Australia's mistakes and control
the pressure on input prices as mining proceeded at a more
The forum heard that while BHP Billiton's decision on the
Olympic Dam had undermined some confidence in the mining sector,
many projects were pushing ahead.
Managing Director, Centrex, Jim White said smaller miners had
found a "silver lining", receiving greater government focus and
support from the service sector since the announcement was made in
"I think it gives us a real opportunity to advance in a more
sustainable manner and to reduce the risks associated with such a
massive expansion and draw down on skills and resources in this
state," Mr White said.
"It gives us a chance to work on the big issues of productivity
and access to capital and be able to manage the skills and
infrastructure base in a more sustained and reliable way."
The forum heard:
- Projects such as Santos' new shale gas well in the Cooper Basin
and BP's construction of a new $20 million diesel storage facility
at Largs Bay signified ongoing strength in the mining sector.
- Santos will invest around $500 million a year for the next 10
years in shale gas production in the Cooper Basin - this would be a
"game changer" in Australia's gas production.
- Government and industry must collaborate to "solve the
infrastructure problem" - how to fund infrastructure to support the
mining sector and other sectors such as agriculture.
- Innovation and productivity improvements would be critical to
making South Australia more competitive and attractive for
- Instruments such as indentures are needed to ensure regulatory
certainty for large scale investment. This could become a source of
competitive advantage for South Australia.
- South Australia should foster foreign investment from its north
Asian neighbours to develop its assets.
- In gearing up for the Olympic Dam expansion, South Australia
has positioned itself to become a mining services hub, with
operationally ready service companies and universities supplying
Unlike Western Australia's mining boom where high input costs
have strangled other industries, South Australia's mining
development was producing positive spillovers for other sectors, Mr
Country towns on the Eyre Peninsula now supported both mining
and agriculture, bring diversity in employment and training
opportunities, he said.
The forum heard South Australia had two world class assets,
Olympic Dam and the Cooper Basin, which were "not going anywhere"
and the State needed to promote these assets more extensively.
Department of Manufacturing, Innovation, Trade, Resources and
Energy, Deputy CEO, Resources and Energy, Dr Paul Heithersay said:
"It's not a question of if but when (Olympic Dam will be further
developed) - Olympic Dam is one of the world's large ore bodies. It
will be mined.
"BHP is re-orienting what they do, looking at a much lower capex
(capital expenditure) to mine this thing, so there's going to be
some massive innovation to come out of it," he said.
The panel said although capital funding was tight, profitable
mining projects were proceeding.
"In this current environment where capital from investors has
dried up, there is still capital from customers," Mr White
The panel said that while government could help to bring forward
mining investment by underwriting investment in infrastructure to
support a range of smaller projects, it was more important to
establish regulatory certainty. Policy could also play an important
role in fostering renewable energy in mining projects, the panel
Codan and Qantas Director, Corinne Namblard said having the
regulatory framework in place with instruments such as indentures,
which guaranteed taxes and royalties around long term projects, was
critical to attracting foreign investment.
"What investors look at is certainty... the introduction of the
carbon tax, changes in the legal/ regulatory (system) as well as
the taxation/fiscal policies are creating turbulences," she
"Proceeding with indentures - making a statement that this is
going to be a bipartisan, longstanding commercial approach to any
agreement and negotiation between a private party and a public
party ‑ is certainly the way to go."
Santos, Vice President Eastern Australia, James Baulderstone
said pruning back the cost of doing business in Australia would
also be critical to attracting foreign investment.
"There is no doubt that part of the decision around Olympic Dam
was the cost of doing business in Australia. If we are not the most
expensive, we are right up there with a couple of other countries,"
"Australia used to be one of the most efficient manufacturers
and resource operators globally, we have to go back to that; get
back to basics."
The panel said that although South Australia enjoyed a cost
advantage over Western Australia, with fly-in-fly-out workers
prepared to work in Coober Pedy for two thirds-to-half the price of
jobs in the Pilbara, more innovation and productivity improvements
SA Council of Mining and Energy, Chief Executive, Jason Kuchel
said: "Some industry people would say there needs to be a pulling
back - certainly in the cost of labour, the cost of contractors,
equipment - all of those things have got up. As an industry we are
looking to see how we can bring some of those costs back under
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