30/09/2012
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 has heard.
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 "rational pace".
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 August.
"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 investment.
- 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 skilled labour.
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 White said.
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 said.
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 heard.
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 said.
"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," he said.
"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 were required.
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 control."