Australia to world: "Do not invest here"
The Fair Work Act and the carbon tax are sending the wrong message to investors. As a result, more mining projects will be shelved.
Until now the optimists have been looking at a continuation of the mining investment boom well into the decade. In a years time, the investment boom will have been so dramatically curtailed that after the election it will have little more than a year to go. Cancelled mining projects will be as common as kangaroos in the outback.
Currently, the mining boom is masking unemployment pressures in non-mining Australia. Unemployment will rise in the first year or two of the new government because the Australian mining industry has become internationally uncompetitive. That will also mean the dollar will fall. Fortunately we will enjoy the revenue from projects now being built.
The first person to alert Australia that the mining investment boom had little more than two years to run was Deloitte Access Economics partner and economist Chris Richardson (KGB: Deloitte's Chris Richardson, July 27).
But since Richardson’s warning, others have followed. This morning The Australian warns that a coming survey by Newport Consulting will reveal that $200 billion in projects is in jeopardy (Weak outlook risks nearly $200m in projects, July 31).
My guess is that Newport, if anything, is understating the level of cancellations. Indeed, deferments announced or projects under review are already well in excess if $100 billion and include Olympic Dam, Gorgon gas, the BHP outer harbour at Port Hedland, Rio Tinto's Queensland coal and Kintyre uranium. And remember; only a few years ago the Canadian uranium miner Cameco was fighting off opponents to buy Kinytre from Rio Tinto.
Everyone is blaming mineral prices for the reviews, postponements or cancellations and there is no doubt that lower prices have played a large role, as has the higher Australian dollar.
But one the biggest factors is the huge rise in Australian construction and mining costs that have, in part, been brought on by aggressive unionism aided by the so called Fair Work Act. Add the carbon tax and Australia has effectively put up a sign saying: "Do Not Invest here”.
And the word is spreading. The Japanese were shocked by the ferocity of unions in the BHP Mitsubishi Queensland coal dispute (Japanese investors spooked by mining disputes, July 20).
Japan will be wary of investing large sums in Australian mining until the Fair Work rules are changed.
The Chinese have been shocked by what happened to Citic Pacific’s Sino Iron magnetite mine in WA. Construction costs have more than tripled to $8 billion. A lot of the blow out was the fault of the Chinese but Australian conditions played a big role.
In the next six months, Gina Rinehart’s Roy Hill must either be mothballed or given the go ahead (Alarm bells sound on Rinehart's hill, May 30).
The word from the unions is that she will be given a hard time if she attempts to construct the mine. Bankers, led by the National Australia Bank must decide whether to loan around $7 billion to the project. But Gina Rinehart is a very determined person and the project may go ahead.
Looking forward over the next five years we may get the odd gas project and a few bolt-on expansions to existing mines plus low cost mines. But unless a project produces minerals at a very low cost (like some gas projects) or is currently well under way, we will not see new projects until the Fair Work act is changed and the carbon tax removed.
Australia must become competitive once again.