Reigning in expansion

International news agency Reuters reported this month that some two-thirds of worldwide mineral industry expansion projects scheduled to get underway in 2009 have been cancelled. Robert Carry takes a look at some of the high profile casualties and survivors in the Australian market.

A disquieting 66 per cent (or $50 billion) of mining investment due to be pumped into world mineral industry expansion projects during the course of 2009 has been slashed, a recent Reuters report revealed. Australia has not proved immune and a number of mooted projects, which had been planned to begin this year, have been shelved.
Mining giant Rio Tinto has deferred a range of operational expansions over recent months as it struggles to slash $US10 billion from its debts by year-end. Two projects in Western Australia; part of a planned underground expansion of its Argyle diamonds mine and a $US371 million automated train program, have both been postponed. The firm has also postponed a $236 million underground project at Northparkes mine in New South Wales. According to Craig Stegman, the Northparke Mine’s general manager, the closure was due to “a significant reduction in the copper price of over 60 per cent since June last year combined with the global economic downturn.”

But despite the increasing cutbacks, Australia is yet to see the complete reversal in operational expansion currently underway in other mineral-rich countries – and plans for a number of major expansion projects are still on course. Among them are plans for an expansion to BHP Billiton’s Olympic Dam project in South Australia which the miner has been examining since 2005. “The pre-feasibility phase of this work is effectively complete,” a company spokesperson told The Australian Journal of Mining.
He continued, “This has allowed the company to develop a project configuration and to lodge a Draft Environmental Impact Statement with the Federal, South Australian and Northern Territory Governments for a check that it complies with the guidelines set for its preparation.”
Once BHP Billiton receives Government approval to do so, it will release the Draft Environmental Impact Statement for further public consultation and mid 2009 has been cited as a likely timeframe.
BHP Billiton is not the only company to press ahead with plans for operational extension in Australia. Minemakers and Australian Transport and Energy Corridor Ltd (ATEC) have signed a Memorandum of Understanding covering a financial study of the economics of a 250km open access standard gauge rail link from the Wonarah Phosphate Project to near Tennant Creek. Should the outcome of the study be positive, ATEC, which will manage the study, will also take on the approvals process, financing as well as the actual construction of the rail link. The line is expected to lower Minemakers’ operating costs and allow higher production output than currently viable by road haulage. Minemakers’ managing director Andrew Drummond said the project “has the potential to lower costs very significantly and allow us to expand development of the international markets for our very large resources.”
Drummond continued, “While it has long been our stated objective for a rail link to Wonarah to be constructed as the key to a second stage development of the Wonarah deposits, the ATEC approach potentially enables a faster track to satisfy this objective. ATEC’s experience in rail infrastructure matters is doubly important at this time of difficulty in raising capital for large infrastructure projects.”
However, although a number of projects remain on course, the overall pattern is distinctly one of increasing deferrals and cancellations both in Australia and further afield. Nonetheless, the cutbacks could yet have a silver lining – particularly for firms which opt to hold to their plans and maintain or increase output. Some experts are expecting commodity stock values to react positively to news of the cancellations of so many expansion projects as they begin to translate into a shortfall in commodity supply compared to what would otherwise have been expected during the course of 2009.