The mining boom is big

I was doing a little ABARE report reading recently and came across these two images which show just how big the Australian mining boom is and how much pace it is gathering. The first is a graphical showing the major development projects in Australia as of October 2010 (full report here).

The second image is the same graph contained in the April 2011 Major Development Projects report (6 months later).

You can easily see the number of red dots has increased in that small time frame.  The total value of all advanced projects (those committed or under construction) increased from $133 billion to $174 billion.  That’s a  $40 billion increase (or 30%) in the space of 6 months.  In additon, the increase has been happening in all sectors – energy,  minerals, infrastructure and processing facilities.

With ever-increasing numbers like that flying around it’s easier to understand the RBA’s hawkish rhetoric last year – especially given Australia’s previous expereince with mining booms.  I would have been a scared Guv’nor too.  However, the RBA didn’t count on the effects of a massive consumer debt hangover because, much like this mining boom, we’ve never had one so big before.

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    • Nice links Raves. It’ll all hinge on China continuing to devour our dirt, which will be hugely affected by a Euro implosion. That said, mining machine imports don’t always correlate with the sort of infrastructure builds ABARE are looking at. Existing or new mines will require equipment, for sure. But large gas/LNG projects and pipeline infrastructure upgrades won’t be so machinery-intensive,

      • Talking of gas…

        Seven LNG projects now under construction in Australia are expected to cost 140 billion Australian dollars (US$144 billion). By 2020, Australia could produce as much as one quarter of the world’s LNG—up from less than a tenth today—making it one of the world’s top two producers alongside Qatar.

        The price of such rapid growth will be high. Resource workers are expensive and will become more so as the market for labor remains tight. Woodside Petroleum has already seen cost overruns of US$3 billion at its giant Pluto LNG project in Western Australia, partly because of labor shortages.

        The soaring Australian dollar, up 65% against the U.S. dollar since the worst of the financial crisis, is also pushing up the cost of business for resources companies.

        BernsteinResearch says the cost per ton of Australian LNG could average as much as US$4,000, compared with about US$1,000 at Apache’s Kitimat project in western Canada.

        Qatar—which produces some of the world’s lowest-cost LNG—has a moratorium on further development of its gigantic North field in order to preserve its longevity. But the self-imposed ban ends in 2013. Discoveries in Africa and the Mediterranean will also affect supply in time. In China, there’s more shale gas than in the U.S., according to the U.S. Energy Information Administration.

        Meanwhile in the US…

        AUSTRALIAN gas exporters had better watch out – there’s a new kid on the block. The US could emerge as a major competitor to Australia’s burgeoning gas-export market, challenging the viability or expansion plans of close to a dozen Australian liquefied natural gas projects, according to Noel Tomnay, the head of global gas at UK-based energy consultancy Wood Mackenzie.

        Traditionally an importer of gas, the US is experiencing a domestic supply glut owing to heavy investment in the production of shale gas in states like Texas. That’s depressing US gas prices and prompting some companies to investigate the potential of terminals on the US coast geared for export to take advantage of higher prices abroad.

        So … there’s a global gas glut, and we are a high-cost producer. Hmmmm. How long before we hear about LNG projects being put on hold?

        • I read that too Lorax. It’s inevitbale I guess – when prices are elevated this high for this long, with everyone predicting a mining “super cycle” due to Chindia, other players will come into the market. It’s happened in almost every mining boom for the last two centuries – high prices, supply increase, prices tank. That said, $173 billion is a large amount of advanced work. Our engineering firms should be licking their lips at the prospect.

          • Indeed, a lot of work out there for consulting and construction companies.

            I was demobilised off a bulk handling project at the end of last year and within a week jumped on board with another greenfield mine project. That kinda turn-around is rare in consulting!

          • Elevated prices? Natural gas prices are at their lowest level in a decade, down a good 80% from pre-crisis highs..

          • That said, $173 billion is a large amount of advanced work. Our engineering firms should be licking their lips at the prospect.

            Sure, if the work actually happens. If the Canadians and Qataris can sell LNG for a fraction of the cost we can, those projects simply won’t happen, contracts or not.

            Remember, the Chinese simply walked away from contracts during the financial crisis.

        • Interesting point, but I wonder whether the supposed low cost suppliers will also find their labour costs spiralling. How mobile is the skilled labour needed for these projects? How many people with the skills are there, and where are they?

          • Alex, skilled labour for much of this type of work whilst mobile remains hard to source. The Shell LNG project in in WA has in conjunction with Curtin Uni, set up a ‘school for gas’ in order to adequately prepare a workforce for this major (first of it’s kind) project.

        • Lorax, I see you have shifted your focus from that glorious commodity to gas, and lots of it. Very appropriate…:)

  1. QC and Rav, this came up on the weekend via a Rumple tweet – my 2c:

    Curious to see that whilst quantity of machinery had decreased, import value had increased…the big stuff, equipment and machinery essential to mine operation.

    The category Skelton Sherborne report on is very broad, they are primarily Queensland based. Would be interesting to see State by State figures. I can assure you, go anywhere in the North West and there is no evidence of pullback. Much of the equipment in this category is imported by mining services companies. There may realistically be a level of restraint given global conditions. In addition, supply timeframes can be tortuous and may also be a factor. A couple of years back production at some mines was genuinely threatened by chronic supply problems with tyres. In fact tyre usage is another idiosyncratic indicator of activity, large replacement regime = high level activity.

    Finally, if MBs calling of the end of the boom is correct, moderation of equipment imports to be expected.

    Wait and see.

    • I’d watch mining employment. I’ve heard from someone living in Perth that it has been slowing but I don’t know if there’s any substance to this claim.

      • I’ve seen no evidence of that, but I am not directly on site. Ordinarily there would be a slowdown of employment Xmas period and sometimes early cyclone season. At this point, all systems go – but it must always be remembered that resources are cyclical and reactive. Just saying I haven’t seen it, nor heard of it…may happen…hopefully not.

        • ps have just returned from dinner with a fellow resource cadre and none of this directly in the outlook…all activity in response to demand, 1) which is holding, and 2) may experience turbulence but long term – we’re there baby! We may be dinosaurs…

  2. In the late 80s and 90s, the massive development of the Pilbara by Woodside, Robe, BHP and CRA (Hammersley Iron) will be never repeated in that region.

    Unemplyment climbed over 11%, House prices fell.

    Mining and mainstreet are not connected, except for the weeny 1.8% of Australia’s employees employed therein and the hyperinflation towns around the mines.

    Mining profits do not flow on to suburban Brisbane, Melbourne etc except via the pittance they pay in royalties and tax.

    Move along. 12% of Australians are employed in retail. 70% of the economy is services.

    House prices fall (equity) and we have a problem.