Return to record investment by 2012/13: analyst

Following a downturn over 2009/10 and 2010/11, BIS Shrapnel’s Mining in Australia, 2009 to 2024 report forecasts annual gross mining investment in Australia will surpass $50 billion by 2011/12 (in constant 2006/07 prices), rising to over $60 billion by 2013/14. BIS Shrapnel said the industry will be boosted by the development of multi-billion dollar projects in the oil and gas, iron ore, coal and copper sectors.
Meanwhile, growth in Australian mining production is expected to pick up strongly across most commodities in 2009/10, and accelerate in subsequent years as global demand improves and several years of investment in new capacity begins to bear fruit. BIS Shrapnel is forecasting the real value of mining production will rise 30 per cent over the five years to 2013/14, compared to an increase of just two per cent in 2008/09.
“The global recession has dented minerals demand momentarily, but the long term outlook for key commodities is still strong,” says Adrian Hart, Senior Manager of BIS Shrapnel’s Infrastructure and Mining Unit. “While we are forecasting a decline in mining investment to play out over the next 12 to 18 months, the extent of the decline is now expected to be relatively mild considering the four-fold increase in mining investment since 2002. Over the next five years, strong growth within the Asian region will be a key source of demand for our resources assets and commodity prices will remain well above long term levels.”
The report notes that rising production and the return of strong investment growth will also bring back the same problems which previously constrained the boom in mining. These include skills shortages, capacity constraints in key rail and port transport chains, equipment shortages, inadequate levels of exploration and a squeeze on necessary maintenance work.
Hart said action needs to be taken now so that Australia can maximise the benefit from the next upswing in the minerals cycle.
“Crucially, further private and public investment is required now to boost coal rail and port capacity on the east coast through the next five years,” he said. “The Queensland Government has recently announced it will now proceed with the $1.1 billion Goonyella to Abbott Point rail link after it was put on hold earlier in the year. This, and much more, needs to be done if Australia is to develop new mines and maintain its share of the global coal market.
“Meanwhile, growth in production and investment will boost the demand for skilled labour. Without proper investment in skills there remains the risk that many promising projects, for example in LNG, will be delayed and costs will rise.”
BIS Shrapnel’s Mining in Australia report identifies prospects for each commodity, with a detailed outlook for global markets and prices, including implications for investment, production, contract mining and asset maintenance in Australia.
“The outlook for mining varies substantially by commodity and region within Australia, with energy and steel-driven commodities such as oil, gas, coal and iron ore having the brightest prospects during the next five years,” said Hart. “By contrast, the recovery in investment for base metals such as nickel, silver, lead and zinc is not expected to arrive until after 2012/13.”

BIS Shrapnel forecasts by commodity:

Oil and Gas
BIS Shrapnel’s Mining in Australia report says oil and gas investment will remain at high levels driven by several large projects in Western Australia, the Northern Territory and Victoria. It will then rise again as the $43 billion Gorgon LNG project ramps up. BIS Shrapnel warns that, with Gorgon going ahead, promising LNG proposals within the Carnarvon and Browse Basins in Western Australia and the coal seam methane LNG industry in Queensland could be delayed several years.

Iron Ore
Growth in iron ore production slowed during 2008/09, and investment is expected to dip from its record peak over the next two years, however the outlook for activity remains quite strong. The steel-intensive rapid growth of the Chinese and Indian economies will lead to further strong investment by iron ore producers. BIS Shrapnel says investment in infrastructure will remain crucial to unlocking the potential of these assets, with large rail and port projects planned by BHP Billiton, Rio Tinto and other iron ore entrants. Public funding for a rail line to a new port at Oakajee will help junior iron ore producers establish operations in the mid-west region of Western Australia.

Coal
As with iron ore, coal investment is expected to ease back from a record peak in 2008/09 over the next two years, but still remain at historically high levels, driven by Asian demand. Growth in production is expected to accelerate strongly from 2010/11 following several years affected by capacity constraints, Queensland floods in 2007/08, and then cutbacks to production following the financial crisis. However, BIS Shrapnel warns that investment in new mines and, ultimately production growth, will need to be well integrated with port and rail expansions funded by both the public and private sector.

For more information visit: www.bis.com.au