Mining projects go ballistic

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From NAB today comes this little note on a big subject, the developing pipeline of major mining projects:

AUS: Resource project listing sky-rockets to $232bn from $173bn in April

Prior to the release of the Government’s mid year review of the Budget this morning, an updated listing of major resource development projects has also been released this morning.

And in a sea of external defensiveness and worry, this six-monthly Australian update of its resource development projects has gotten even larger, now bursting at the seams. The listing from the Federal Bureau of Resource and Energy Economics (BREE) has seen the value of underway/ committed projects (termed “advanced” by BREE) soar to $A232bn, some 16.6% of GDP. That’s up from $A174bn (13% of GDP) only six months ago and $A132bn (10.0% of GDP) last October (see first chart below).

The boost this time comes from the addition of several large-scale LNG projects including Wheatstone, APLNG and Prelude LNG (Shell’s offshore floating platform LNG project) as well as BHP Billiton’s commitment to develop the Caval Ridge coal mine in Queensland.


It’s certainly a very ambitious list. Remember that these are committed or already underway projects; other less advanced projects that are on the drawing board and not yet fully committed to comprise another 302 projects (on top of the 102 advanced projects), including several more signature LNG projects currently under consideration. These less advanced projects total another $224bn.

We have already seen how large-scale engineering expenditure is boosting domestic demand as well as supporting the demand for labour when non-mining companies are more defensive in increasing capacity

We also have to remember that import intensity of such large scale projects – especially the LNG projects – will likely to quite high and therefore boost GDP in the region through the supply of specialised plant and machinery. This will be boosting imports of capital goods as it already has been of late

The boost to capacity will also serve over time to put a cap on resource prices in the global market place. The spot price of iron ore has already pulled back from its all time high in the September quarter. NAB expects that the terms of trade has already peaked with a decline of 7.8% forecast for 2012

What an extraordinary circumstance. Just imagine where we’d be without this investment? Yet, at the same time, we’re now deep into the LNG leg of the boom, which the RBA and other economists have already described as having limited direct benefits to the nation. There are still the longer term benefits of exports and tax revenues, as well as perhaps 20% of dividends staying here.

And this is the same day that the MYEFO has announced a $20 billion Budget black hole and slashed spending in the forward estimates.

It’s quite a disjunction.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.