Mining cliff casualties start to mount

By Leith van Onselen

One of the major structural adjustments that will take place over the next three years is the unwind of the biggest mining investment boom in Australia’s history, which will see many thousands of jobs lost across construction, mining services, and other ancillary industries.

As shown in the chart below, the current mining investment boom is unprecedented, peaking at around 7.5% of GDP in June 2013 and tracking at 6.9% of GDP as at June 2014:

ScreenHunter_5245 Dec. 01 15.31

The last Bureau of Resource and Energy Economics (BREE) update on the pipeline of major Australian resource projects painted a bleak picture for future mining investment, with the current stock of resources projects all but exhausted by 2017 (see next chart).


In our view, most of the projects labelled as “likely” and “possible” by BREE are in fact “heroic” and “a nice idea”: how many resources companies are likely to commit new money amid gluts and falling prices for iron ore, coal and petroleum (gas)? These three make up three-quarters of BREE’s prospective projects.

Rather, once the current pipeline of projects are exhausted in 2017, we believe that mining investment could retrace to around 1% of GDP – as was the case after the 1970s boom – as investment undershoots the long-run average.

And the big casualty from this decline in mining investment will be jobs. To get a sense of the employment shift that will take place, as well as the likely impact on mining communities, one only needs to consider the outline of jobs at Gladstone’s three $70 billion-plus LNG plants, which are currently under construction and are due for completion over the next 18 months where direct construction jobs across the three projects number around 10,000.

Once the projects are completed, and the LNG plants move into the operational phase, then only 420 employees are expected to be required. That’s a reduction in direct jobs of around 95%, not to mention the loss of jobs in functions peripheral to construction (e.g. engineers and mining services in our capital cities), as well as those indirectly affected (e.g. services staff in Gladstone), which will multiply the losses.

Add in similar types of declines across Western Australia (e.g. Gorgon LNG, Wheatstone LNG and the Roy Hill iron ore mine) and the Northern Territory (Ichthys LNG), and you have the ingredients for a major employment shock that will gather strength from mid-2015 and run right through 2016 and 2017.

Already, we are starting to see the impacts of falling mining investment on the labour market. As reported in The Australian and The ABC today, the latest quarterly survey by the Australian Institute of Geoscientists claims that a third of geologists are unemployed or underemployed as mining exploration work becomes increasingly rare.

Here’s The ABC’s take:

…geologists were being offered up to $90,000 for new jobs a few years ago. Now, some were offering to work for free.

The unemployment rate among the survey’s 666 respondents at the end of December was 15.5 per cent, 2 per cent higher than the previous quarter…

The combined unemployment and underemployment rate [is] 32.4 per cent…

And The Australian’s:

Adelaide-based Nicole Galloway, a geologist for 25 years, knows the stark reality of the headwinds facing the economy after losing her job at junior ­explorer Phoenix Resources in December. She now fears she will have to reskill as there are no jobs in her field…

“This is the worst downturn I have seen, not only in its number of unemployed geologists on the market but the longevity of the downturn. It is a cyclic industry but this downturn has been exceptionally long and I’m not sure it’s going to improve soon.”

Again, this is just the tip of the iceberg: just wait until the six large LNG projects are completed, construction workers (among others) are retrenched, and the workforces across these projects are reduced in the order of 95%.

The total number of mining jobs that are likely to disappear from the 2011 peak have been estimated in the vicinity of 100,000. Add in multipliers to other industries and that figure could double.

To add insult to injury, this retrenchment will coincide with the shuttering of Australia’s automotive assembly industry, which has been conservatively forecast to slash 40,000 jobs in Victoria and South Australia alone.

Combined, these are the two big employment shocks facing Australia.

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