Mining projects go ballistic

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.

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  1. Just imagine if we actually owned the resource exploitation that goes on on our sovereign soil. We might produce so much revenue for ourselves instead of foreign shareholders, that we need never worry about deficit-phobia again and indeed, might even need a sovereign wealth fund to funnel the excess into lest it become inflationary.

    • Yep – in good old Aussie style we sold it off…and still are (think recent resources acquisitions). The world values our resources more than we do. As Flawse says, we just want the trinkets.

      • Yep. Australian resources are enormously lucrative – to others. There is a staggering amount of wealth under our territorial soil and seabed. If only Australia was getting the full benefit of that, we could probably then honestly claim that the economy was powered by mining.

    • Don’t forget we can’t afford to fund these projects ourselves, we pumped all our money into houses instead.

      That aside that is a huge number.

      • +1 exactly.

        Many projects would not get funded without overseas ownership. Hence we’d have 100% of (near) zero revenues without foreign capital rather than 20% of some other number.

        The question is not why 80% of dividends leave the country but why aussie instos prefer to fund ponzi housing rather than productive ventures. If our institutions grew a pair the proportion of foreign ownership would be significantly less.

        • “The question is not why 80% of dividends leave the country but why aussie instos prefer to fund ponzi housing rather than productive ventures.”

          And the answer is (although maybe not entirely) that the playing field has been tilted by government decisions to favour lending to ponzi housing. Things like the risk weighting banks have to apply to different types of asset (Basel III). Not to mention FHB grants, negative gearing, depreciation allowances and concessional capital gains taxation.

      • Yep, it kills me. My doctor’s actually told me I’m not allowed to view Australian household debt figures more than once a week.

    • Some denigrate the foreign investors (Deputy Pm Bob Brown for example). Without them these projects would never be developed as we don’t have the internal savings to develop them ourselves.
      Basically its our fault.

      • Many projects have struggled for finance from Australian sources. Just not interested – easier to ‘invest’ in the FIRE sector. Foreign investors saw the opportunity (and a preparedness to take the risk). Good luck to them.

      • as we don’t have the internal savings to develop them ourselves.

        I would says $1.4 trillion dollars in super funds says otherwise.

        Now imagine super fund performance if they had the talent and foresight to fnud at the development stage, instead of just chruning into the ASX 8.

        This says more about the (lack of) talent in our fund management industry than government policy, a housing bubble or the mining industry’s sense of entitlement.

        • “…mining industry’s sense of entitlement.”

          Ludicrous. What sense of entitlement? Trust me, until recent years the mining industry has just got on with the job with little to no external interest, a struggle for funding, reduction of red-tap and certainly with no ‘sense of entitlement’.

          Suddenly everyone wants a piece of the resources pie. This one sector is expected to finance or salvage the economy and government largesse.

          Any ‘sense of entitlement’ belongs to those with their hands out.

          • darklydrawlMEMBER

            “Any ‘sense of entitlement’ belongs to those with their hands out.”

            Spot on! and that is such a bogan attitude these days too…

        • Somehow I don’t think developing a mine from scratch is within the risk profile of most people’s retirement savings. Using Princes barbel theory only a few percent would be prudent. Let’s say 5%, that only gives us 70 odd billion from super funds. Far more tied up in houses that shouldn’t be.

          • I would think of those between the ages of 20 and 40, its risk profile is ideal.

            And yes, only a few percent would be allocated.

            However that $70 billion is a hell of a lot of capital for start up mining companies. Spread out amongst a raft of miners, you would get a decent return.

            The housing question is this equation is irrelevant, superannuation is a pool of savings. The ideal alloaction of savings is towards investing in productive assets, not tracking indicies on the secondary market.

          • I agree with your statement “The ideal alloaction of savings is towards investing in productive assets, not tracking indicies on the secondary market.”

            But where houses gets into this equation, is where Australia’s overpriced houses has diverted capital from productive assets into an unproductive asset.

          • But where houses gets into this equation, is where Australia’s overpriced houses has diverted capital from productive assets into an unproductive asset.

            As I said earlier, it is irrelevant.

            Mining enterprises need access to savings, we have savings in abundance with our superannuation scheme.

            The fund managers didn’t join the party, and miners went overseas. That decision meant dividends go overseas.

            A large(r) proportion of those dividends could have remained in Australia solely due to fund mangager activity, regardless of what activity occured in housing.

    • I once watched an ABC Lateline interview of a Mining CEO who used the phrase “releases assets” to describe how the govt virtually gives our mineral wealth away to whichever company wants it.
      All Aus get are some royalties and lease payments as we stand back and watch whole industries vertically integrated back to some multinational or soverign entity.
      Lazy but effective way to long-term impoverish the land.

  2. thanks for post H&H

    “Just imagine where we’d be without this investment?” yes, we would be up $hit creek but we are not.

    this invetment is very real. australia in the right place at the right time but still investors focus on europe half a world away rather than on our own doorstep in asia? go figure.

  3. A glorious map.

    Clearly demonstrates why Treasury and RBA ran all the way with the resources boom, nothing else offered this scale of investment nor boost to ToT.

    Alas there are a global issues that may impact. We have been advised the resources boom is over, but to my mind that map alone says it all – we had no other choice. Not when all else was stagnating or in potential decline. They made the right call.

  4. Goes to show all those Carbon Tax and MRRT naysayers are quite full of it with there “all these multinationals will just go elsewhere” arguments.

    The responsibility is clearly on the governments shoulders to make sure that the profits aren’t immediately exported alongside the resources. However I doubt the capability of most members of parliament to understand what is needed. They will be too distracted with GFC2 to even notice. State governments will compete with each other to get as many projects up and running as possible, leading to environmental mismanagement (see Gladstone Harbour).

    Pretty depressing really when you think about it. Oh yeah and I work in the resources sector.

    • Re Carbon Tax and MRRT

      Neither are operational yet. Carbon tax will hurt most businesses, particularly manufacturing and transport. MRRT, despite the governments pleasure with it, will adversely affect smaller resources companies and does not apply to all resources ventures.

      If you have no interest in the future of the sector perhaps you should contemplate a change of profession.

      • “If you have no interest in the future of the sector perhaps you should contemplate a change of profession.”

        I have very transferable skills, experience and qualifications, so unlike many in the sector I don’t have such vested interests in any one sector 🙂

    • UE agree but the only problem is as the rest of the economy is going down the tubes, especially manufacturing, then when the mining boom becomes a bust then Australia is litterly screwed. China and India arent going to boom forever look at all the situations they have now.

      • LBS – that is the risk. If we had no resources, therefore no boom, we would already be toast.

        If nothing else, it ‘buys’ time – what we do with that time and as MB consistently says ‘how we manage’ the boom are key – although I doubt we can ‘manage’ it as much as some would like.

        • “it ‘buys’ time”. Says it all really. The first was squandered, the second bought us some time and the third? Will there be a third?

          • There will be a third. Fourth. Fifth. At some point as a nation we may wish to engineer a future sans reliance on resources, at least in the form we currently understand them. Don’t know if we will though.