US bond yields surge

In Talking Finance this week:

• The big news is the US 10 year bond yield surging overnight – the biggest move since Donald Trump was elected President.
• To investigate why it happened, and what it means, I’ll be talking to Chris Weston, Head of Research at Pepperstone Group Limited and Michael Blythe, Chief Economist at the Commonwealth Bank of Australia.
• It’s also house prices week, so I’ll be checking in with Tim Lawless, Head of Research at CoreLogic Asia Pacific and asking him to put this property down turn into historical context.
• And we’ve also got Dennis Atkins, National Affairs Editor at The Courier Mail on politics and Sabrin Chowdhury, Commodities & Mining Analyst at Fitch Solutions on a report she’s just put out about technology in mining.

Hello, and welcome to Talking Finance, I’m Alan Kohler.  This week the big news is the US 10-year bond yields surging overnight, the biggest move since Donald Trump was elected President.  To investigate why it happened and what it means, I’ll be talking to Chris Weston from Pepperstone and Michael Blythe from Commonwealth Bank.  And it’s also house prices week so I’ll be checking in with Tim Lawless of CoreLogic and asking him to put this property downturn into a historical context.  We’ve also got Dennis Atkins from The Courier Mail on politics, and Commodities and Mining Analyst at Fitch Solutions, Sabrin Chowdhury, on a report that she’s just put out about technology in mining.

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And now for all the action on markets, here’s Chris Weston, the Head of Research at Pepperstone.  Quite a big spike in bond yields last night, a bit of panic-selling I think in the US Treasury market, what was causing that do you think, Chris?

CW:  Well, I put it down to three major factors, Alan.  I think first of all, you can’t go past the strength that we’ve been seeing in US crude and that is inflationary.  You saw an inventory number last night where we saw a 7.9-million-barrel build, but yet, US crude was up 1.6%.  We are talking about $100-dollar-barrel-oil, that conversation is real.  The resilience that we saw there last night is pretty important.  I think as crude’s been going up you have seen a strong correlation between the sell-off in the bond market, especially in the long end and what’s been happening in the crude complex.  That’s something that we continue to need to watch out for.  The second other big issue is the strength of the US data last night.  It was super impressive. 

You’ve got the ADP private payrolls number coming out at 230,000, the market was looking for 184,000.  Obviously, people are looking at Friday’s number from payroll’s number and saying there’s obviously clear upside to the consensus of 184,000 jobs.  But also, looking at the ISM service number, and of course, services is about 70% of US GDP, so when you see it coming out at 61.6, showing very, very strong growth, that index is at the highest in 21 years, of course you’re going to go and sell treasury in that situation.  Then I think you’ve obviously got a slight calming of nerves around the Italy thematic when the government there have come out with revised deficit targets, which in a battle of a war of words, it seems that they’ve sort of blinked first. 

Again, I think those three factors saw a real reason to be selling.  But if you have a look at the 10-year US treasury, up 11 basis points, highest levels since June 2016, that’s a big move, that is a big sell-off.  The back end of the curve is really selling off quite sharply.  We’re breaking all sort of resistance levels.  You can go into the interest rate markets, have a look at the differential between the December 2020 Euro dollar future contract in December 2018, which gives you an idea about what sort of interest rate expectations are priced in between that period and that moves up 10.5 basis points which doesn’t sound like a lot, but in interest rate terms, that’s massive.  What we saw last night was a once in an every now and again sort of scenario.  These are big, big moves, so market really seeing a number of factors, but what happens now obviously depends on what happens on Friday’s non-farm payrolls number.  But the higher these yields are going, it’s going to have implications for the global economy, it’s going to have big implications for investing more broadly.

Do you think it brings forward your estimation of when the bull market in equities ends?

CW:  Well, I think rising bond yields is fine, as long as it’s married up with the idea that you are seeing global growth moving higher, but I think the recent PMI series that we’ve seen from across the globe was quite poor.  In fact, if you look at JP Morgan’s global PMI data point it’s actually the lowest level since 2016.  Manufacturing is on the decline and that’s not good.  But, what we are seeing is the US is the standout economy.  We’ve seen that for a while, it’s the reason why the US Dollar’s up six days in a row, because people are seeing monetary policy divergence, but they’re also seeing economic divergence as well.  It’s not so much a problem in the US. 

If you’re invested in US equities, which of course a lot of people have been, as long as their economy is improving – and the economy in the US is red hot right now, there’s no doubt whatsoever about that.  Rising rates, as long as it’s a reflection of the economy and inflation expectations and is not married up by a federal reserve who want to raise aggressively, like we’ve seen in previous cycles.  Of course, financial conditions are still fairly accommodative and equities will be bought on any kind of pull-backs – we’re in that environment as well.  But if we do start seeing an idea that wages are really going to spike up and people’s inflation expectations really go a lot higher than where they are at the moment, then the idea that the Federal Reserve are going to raise more aggressively, will see equities under pressure.

The chance of a recession in the US in my opinion are probably slightly higher than where the market’s anticipated which is about 15%.  But if recessions don’t happen in the US without actually a catalyst.  They don’t just happen by magic unless of course there’s a big sort of geographical event that happens.  But in the whole, they’re caused by a central bank who miscalculates the move and as long as the Federal Reserve is going to be very gradual with these moves, then we don’t have to worry too much about this.  But that said, I think the equity situation is still okay and I think the risk of a deep pull-back is fairly low at this stage. 

And of course, the leading indicator which we’re always going to look at is what’s happening at credit spreads and high-yield credit spreads are at multi-year lows at the moment and are not giving equity investors any reason to be reducing exposures to greatly.  But, never say never.  I think the chance of a deep, deep pull back in this market is very low at the moment and the forward indicators that we look at are still fairly accommodative.  But, it’s a ‘watch this space’ still. 

Do you think it also means the market’s saying that they’re not worried about the trade war impact, or are they just saying they’re not worried about the trade war impact on America?

CW:  The market voted on the trade war for a while.  Chinese equities got slammed a couple of months ago, as they did in Hong Kong.  They’ve clearly said who’s going to be the loser out of that situation until state-owned banks started buying up Chinese stocks and of course, that market’s closed today.  But in terms of the US, if you look at the way that the market’s been looking at this, they clearly don’t see this – and the way that bond yields have reacted in the last few days, they’re saying, if anything this is going to be inflationary, the price of goods for all these consumer goods that they bring in are obviously going to go up on price and that’s going to have a hit on consumers and consumer inflation, but it’s probably not going to do too much to US growth at this stage.   But let’s not forget how Donald Trump works.  He always comes from a position of power, he goes into bat very, very hard and he rewinds it and dulls it back to get to a resolution and then he comes out with the necessary PR which he’s going to need for the mid-term elections.  I just think the way that the US market’s reacting, the way that we’ve only seen very subtle shifts in inflation expectations in the bond market.  People don’t see the trade war at this stage being a significant risk event for the US economy and if you look at what the Fed have been saying, they’re saying, well we have to wait until we actually see signs of this creeping up in the data.

The thing for me is really what happens in the December Fed meeting.  Of course, at the moment the market is expecting the Federal Reserve to raise rates another time, but we would have a lot more of the data then, we’d have a lot more of the fast-moving data and understand whether or not the Federal Reserve’s outlook on their projections for statement of monetary policy are actually going change as a result of the tariffs.  At the moment we just don’t know enough about how this is going to impact consumer behaviour, business behaviour and how that creeps up in the data. 

But, in the December meeting, the Federal Reserve will have a lot more evidence and potentially change and alter their economic projections based on new news.  

Thanks very much Chris.

CW:  Pleasure, thank you.

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And now to talk about the economic scene, let’s turn to Michael Blythe, Chief Economist at Commonwealth Bank.  Michael, there’s a bit of data out this week but first, let’s talk about what happened last night with US bond yields which jumped quite sharply.  What impact is that likely to have in Australia?

MB:  Well, we’ll probably see some follow-through here of course.  Whatever happens in the US overnight tends to get reflected in our markets as well, but I suspect we wouldn’t see the full flow-through come through.  The Australian economy obviously not running as the US economy appears to be at the moment and clearly the Fed and the RBA are on different trajectories at the moment as well. 

I suppose I’m wondering whether there’s going to be a longer-term impact on the Australian share market and perhaps the Australian property market?

MB:  Well, I think it’s certainly a reminder that interest rates won’t stay low forever.  That kind of global benchmark, Treasury bond yields have been creeping higher for a while now.  They’re still remaining low by any kind of longer run perspectives, but we should all be prepared for higher interest rates, not just in the US but also in Australia as well, and that will be reflected in other markets in Australia.  The equity and of course it’s another potential headwind for the Australian property market as well.

Onto the local data, what did you learn this week, Michael?

MB:  Well, we learnt the housing cycle is continuing to roll over, further falls in house prices in a sense was no surprise there.  The biggest surprise I think from a housing perspective was the large fall we saw in building approvals for August, so it does look like that kind of construction boom in the residential side that’s been very good at generating activity and jobs in the Australian economy has peaked and are starting to move lower and potentially becomes a drag on the economy overall as we move through the next year.  It’s important I think because typical residential construction downturns can take more than 1% off GDP growth and obviously have a negative impact on the employment side and quite a big flow through to the rest of the economy as well.  On our analysis, basically every dollar you spend on residential construction, that generates $1.32 of spending somewhere else in the economy because all those new houses need carpets and furniture and the like.  Any type of downturn that gets underway in that residential construction story will flow through to other important parts of the economy as well, such as the retail side which is already obviously pretty soft. 

What sort of impact is it likely to have on GDP growth next year?

MB:  We don’t think there’s too much downside to be honest.  Australia’s population growth is still very strong and in fact, if we look at the ratio of new construction to population growth, despite the biggest construction boom we’ve ever had, that ratio is still running below average.  In a sense, we need to keep building at very high rates just to kind of keep up with that population story.  It’s not going to add anything to growth over the next year, but the potential drag we think will be pretty small as well and probably something of the order of a quarter of a percentage point at most, we think.

What about the combination of strong continuing population growth, as you say, and the decline in construction, is that likely to put a floor under house prices?

MB:  Yes, I think that limits how far things could fall and probably the main driver of what happens to the prices from here is not so much the kind of underlying demand sign, but more just the sheer scale of the increases that we saw over the previous few years.  When you look at the trough to peak move in Sydney prices, up 74%, while I think just besides that rise, it potentially gives you a bigger fall from trough to peak, even if the population story remains pretty supportive overall.

Great to talk, Michael, thank you.

MB:  Not a problem.

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And now for our monthly chat about house prices, here’s Tim Lawless, Head of Research at CoreLogic.  Tim, decline of 0.6% national house prices in September.  Could you put that into context for us?  Compare, not just September, but the past 12 months or so of decline from peak to trough, with previous ones?

TL:  Since the market peaked in September last year – the downturn’s been running for 12 months now – we’ve seen values fall by a total of 2.7%, so a relatively mild downturn.  To put that into some context, if you look at the previous downturn which ran between June of 2010 and February 2012, over the first 12 months of downturn we saw values fall at about 3% and they kept on falling to a total of 6.5% down, but the worst of the month on month declines was down about 0.7%.  We’re actually seeing this downturn we’re in at the moment, even though it is relatively broad-based, it is quite mild and it does seem to be very much controlled based on the tighter finance and regulations we’re seeing. 

That downturn you talk about, 2010 to 2012, it was quite long, it was almost two years I think, 21 months.  But as you say, relatively shallow, 6.5%.  The one in the GFC was short and sharp, wasn’t it?  Down 7.9% but only 12 months, so we’ve kind of almost gone – well, we have gone past the duration of that one. 

TL:  The current cycle is looking much more like a slow melt.  The big difference in the GFC of course was this was a real economic shock.  I think that downturn would have been much deeper if we hadn’t seen a lot of stimulus introduced into the Australian economy and of course, the housing market around the first home buyers boost, the school halls, the cash hand-outs… All that sort of stuff really did help to bring the economy out of what could have been a much deeper decline.

You helpfully sent me a chart of the month on month changes in dwelling values going back to 1988, so a fairly long way – and I’ll put that chart on the website as well so listeners can look at it.  But what strikes me just looking at that chart is that the peaks have been getting lower and the troughs have been getting shallower over that time.  I mean, every peak in prices, in terms of the monthly change, has been lower than the previous one, and every trough is shallower than the previous one, virtually.  I mean, not quite, but just about that.

[caption id="attachment_173431" align="aligncenter" width="723"] Source: CoreLogic[/caption]

Comparing the recent peak to trough cycles:

[caption id="attachment_173432" align="aligncenter" width="719"] Source: CoreLogic[/caption]

TL:   Yeah, it does suggest the marketplace clearly is very cyclical when you look at the month on month changes and just the pattern nationally.  It’s very clear that every growth cycle is followed by some level of a downturn and generally those downturns last around about 10 to 14 months, depending on what phase it’s been and what’s happening in the economy.  That’s the really interesting thing about this downturn, is it’s not being influenced by monetary policy or changes in interest rates.  This is really about credit availability and regulation, which I think is probably one of the reasons why the level of decline has been quite modest. 

Do you think that that’s because the authorities are managing it or simply because it would be expected that a decline caused by the availability of credit rather than the price of credit would be more manageable, would be the sort of thing we’re seeing at the moment?

TL:  I think it’s a bit of both and clearly this is being managed and if we did see the marketplace move into a more material downturn, then potentially some of this regulation could be wound back and we could see a stimulus come into the market.  But the other factor here I think comes about the fact that economically, we’re still seeing Australia’s economy performing reasonably healthily.  We’re seeing unemployment drifting lower, 5.3%.  Underemployment is the lowest it’s been since 2014.  Population growth is still pretty strong.  Mortgage rates are still very low and we’re seeing first home buyers coming back into the market.  I think there’s a lot of factors offsetting the tight credit restrictions as well which I think is helping to balance out this downturn.

It’s probably worth mentioning that when you say a 2.7% decline, that’s obviously a national.  The capital cities are down 3.7%, the regional areas are still up a bit, so that’s a bit of an offsetting factor there.  But also, within the capital cities there’s ups and downs as well.  Can you just take us through, in particular, Melbourne and Sydney?  I mean, how much have Sydney prices now fallen, from peak to trough, and is Melbourne starting to catch up in terms of the extent of their declines?

TL:  Sydney and Melbourne are now leading the downturn.  We’ve seen Sydney values fall by 6.2% since they peaked back in July 2017.  That’s the largest fall of the major capitals at least, Melbourne’s down nearly 4.5% since the market peaked but it did peak back in November, so a bit later than what Sydney did.  Absolutely, Melbourne is catching up to Sydney.  Over the September quarter, Melbourne values were down 2.4% and that was the biggest fall of any of the capitals.  Broadly, we’re now seeing four of Australia’s capital cities in annual decline, that’s Perth and Darwin which have been a long-running downturn.  Sydney and Melbourne are now seeing values falling on an annual basis and will probably continue, but all the other capital cities are still seeing some level of subtle growth, but clearly their growth, for example, has also been impacted and have slowed quite sharply relative to a year ago.

Crystal ball – does it feel to you like we’re in for a length of decline like 2010 to 2012, i.e. close to two years, or something shorter and along the lines of what we usually see, which is as you say, 10 to 12 months?

TL:  I think this probably will be quite a drawn-out downturn and you might describe it as a slow melt in many ways.  We’re not expecting credit to loosen up any time soon and in fact, it may even get a bit tighter, considering the interim report’s been handed down from the Royal Commission and lenders are clearly going to be quite conservative in their lending practices.  So, I think with that in mind we will continue to see investors falling away in terms of their level of demand in the market.  Investors are still about 41% of new mortgage demand.  So, if we do see investor numbers fall away further from here, that does leave a bit of a hole in overall demand, which may be partially offset by first home buyers, but probably not completely. 

Do you think that there are signs that other capital cities are going to join Melbourne and Sydney in the downturn?  Not the ones we’ve seen, but capital cities like Hobart, Adelaide and so on, are they heading for downturns as well do you think?

TL:  I think the markets you mentioned, Hobart probably is the most likely to move into some level of downturn, simply because we have seen affordability constraints really become quite challenged in that market and of course, the growth rates have been quite solid up until just recently.  We’ve actually seen, two of the past three months have seen Hobart values slip a little bit lower.  Brisbane does seem to have much more diverse growth drivers, it’s very affordable, we’re seeing population growth really ramping up.  But in saying that, the rate of capital gains has really slowed down from a year ago, and it’s almost the same situation in Adelaide – not quite as deep an economy or strong population growth drivers, but a relatively stable outlook for Adelaide as well.

Great to talk, Tim, as always.  Thank you.

TL:  Thanks, Alan, good to speak.

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[Parliament audio clip]

And now to discuss politics for the week, here’s Dennis Atkins, National Affairs Editor for The Courier Mail.  Dennis, how do you think the negotiations over the GST carve up have gone for the new Treasurer, Josh Frydenberg?

DA:  Well, if he thought he was going to get agreement, then he was right, but he got agreement among the states who oppose what he was doing with the exception of Western Australia.  The states went into this meeting agreeing with the principle that Josh Frydenberg was putting forward, which was that there should be a guarantee that no state would be worse off, but they wanted it in writing and they wanted it in legislation, and the Commonwealth’s not prepared to do that. 

I think if we look at a graph which New South Wales Treasury put together and mysteriously ended up in the Telegraph this morning, this shows that if there is another mining boom, then Western Australia will be $25 billion better off and everybody else, led by New South Wales, would be worse off.  New South Wales would be $5.5 billion worse off and so on, $4.5 billion Victoria and $3.2 billion up in Queensland.  You can see why the state treasurers other than the Treasurer from WA want this in writing, because they don’t want to see a situation where we go back to a mining boom, a flood of money comes into the west.  They then get their GST receipts going through the roof and they get penalised.  Where we go from here, I don’t know.  There’s a standoff, the states are pretty unhappy.  The Government has to get some GST legislation through the parliament.  I think they’re going to do that anyway.  Labor says that they’ll move an amendment guaranteeing what the Government has been talking about, but if that doesn’t get support in the Senate, which is unlikely, then they’ll waive the Government’s legislation through anyway. 

Obviously, the Government is seeing this as a potential election issue, are they right?  Do people really care about this apart from those in Perth? 

DA:  They do in Western Australia, but they’re a different kettle of fish over in WA.  The Western Australians get very exercised about GST payments.  If you worked up a campaign in some of the other states you might be able to get some popular support to oppose what the Government’s doing, but I doubt it.  While it’s theoretical, which is where we are at the moment, the Federal Government’s fixed up the Western Australian problem and these other arguments are basically theoretical, they’re sort of based on if there’s a mining boom and what might happen 10 years down the track.  This is not something that you’re going to whip up into a popular campaign one way or the other.

Obviously, we’re into election campaign mode now.  How do you think each side is going now?

DA:  I think that Scott Morrison’s actually doing a lot better than what a lot of people thought.  He’s managing to connect with the public quite well.  I’ve picked up quite a positive response from people in the street, people he’s said, “Who I know and who know me…” but aren’t sort of involved in the politics/media bubble, and they like him.  The bloke at the local bootmakers was telling me the other day, he said, “Oh look, he’s better than the last two and he’s got a no-nonsense attitude to him.”  And I think that’s right, and I think the public are picking up on that. 

Whether that can turnaround the dire political straits of the Coalition, well, we’ll have to see.  The election is six to eight months off.  But he may get them into a better position than where they were and where they were probably heading.  Shorten and Labor are still sort of marching on.  Shorten is trying to get Labor back onto the policy agenda, which they’ve used pretty successfully in the past and his big item this week was to build on the previous Labor initiative to bring preschool down to 4-year-olds.  He’s going to take it down to 3-year-olds, which is expensive.  It’s $1.75 billion over four years, but it is something that’s going to be very popular, especially with women. 

Do you think that the Labor Party’s vulnerable at all?  And I’m thinking here in particular about the ACTU’s now call to end enterprise bargaining.  Do you think the Labor Party might have a problem with industrial relations at all, or anything else for that matter?

DA:  Well, it may.  I think that there’s a fair bit of support in the workplace for better pay rises and bigger pay rises.  Whether a big fight between organised labour and business is going to benefit Labor is another thing altogether.  I think it could be dangerous territory for Labor.  One Labor politician said to me a while ago that trade unions, up until recently, had fallen of the public radar.  But with the elevation of Sally McManus to the Head of the ACTU, a feisty, very in your face and also very high-profile trade union leader, people are noticing again and it breaks both ways for the Labor Party.

There’s some support, mainly from Labor traditional base, but swinging voters don’t like it so much, they worry about it.  This is a potential issue.  I think the other thing that Labor may have to worry about – it hasn’t been a problem yet – is something you actually wrote about recently, and that is Labor’s tax agenda.  I think in particular, their moves on retirement taxes and negative gearing.  If the Government’s smart, they can whip up a campaign on both of those fronts.  We haven’t seen much from the Government yet, but maybe they’re keeping their powder dry.

Yes, indeed.  Thanks, Dennis.

DA:  Thanks, Alan.

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Joining me now to talk about mining technology, which is a hot topic at the moment, here’s Sabrin Chowdhury, the Mining Analyst with Fitch Solutions.  Sabrin, it’s starting to look as if investors should look at mining companies as technology companies, not just mining companies, do you think you agree with that?

SC:  Yes, of course.

Can you just describe the technology that the mining companies are introducing now?

SC:  Well, the mining landscape right now, right now it’s in the age of technological disruption.  Almost all the mining companies in the world are in a rush to implement the latest technologies depending on their financial capabilities.  The latest right now is definitely AI, artificial intelligence, machine learning, as well as many other types of technologies such as automated trucks, which is part of artificial intelligence.  Also, automated drill sensors, cloud computing, drones, just name it…  Yeah, these are the latest technologies implemented in various mines all across the world. 

I take it that it’s more than simply driverless trucks, is that right?

SC:  Yes, definitely.  Even driverless trucks are not very simple.  A lot of machine learning, artificial intelligence goes behind the driverless truck, but that’s not it, definitely not.  Miners such as Rio Tinto, FMG, BHP, Vale… They’re also implementing other types of technology such as Internet of Things, IoT, as you call it, industrial IoT.  Also, lots of other types of technologies such as predictive health tools, intelligent railway systems… It doesn’t stop there.

You mentioned BHP, Fortescue and Rio – is there a big difference between the technology that each of them is introducing?  Is any of those companies ahead of the others?

SC:  Yes.  Rio Tinto is definitely ahead of the others.  The types of technology would not vary too much across the industry, but I guess it would be the timeline that takes Rio apart from the others.  Rio Tinto first implemented its autonomous haul truck in 2008.  That is way ahead of the others such as Fortescue and BHP.  Right now, Rio also has a plan to incorporate 130 autonomous trucks by 2019, which is larger than any other company so far in the world.  Also, many other things also differentiate Rio Tinto from the other companies.  They have their in-house technology team, they have their own mass RTBI solution modelling and development team.  They have various partnerships at universities.  They have their own Data Science Unit.  They’ve come a very long way since 2008 and other companies are only recently in the game.

You’ve got a chart in your report of Rio Tinto’s cash unit costs at Pilbara, come down from $20 dollars US in 2013, to about $13 dollars now.  Firstly, is that the largest reduction in unit costs among the Pilbara miners, or has Fortescue done better? 

SC:  I think right now, Rio Tinto’s cash costs are actually very competitive, they’re probably one of the best right now.  They’re comparable to Vale in South America, so this is quite a strong reduction and it also comes with a lot of efficiency enhancement through the different types of technology.  So, yes, I would Rio is ahead of the game in decreasing cash unit costs as well.

Do you think that there are further reductions possible from here?

SC:  Further reductions will be difficult, I will not lie, but yes, it’s definitely still possible.

But not as much as we’ve seen in the past, is that what you’re saying?

SC:  No, I mean, costs are already so low, it’s right now close to $13 dollars a ton, so how much lower can they go?  Obviously, you wouldn’t expect more than 50% decrease.  You’ve seen from 2011/2012, those were $22-dollars-a-ton-days, and right now you have them decreased to almost 50%.  You won’t be able to see 50% decreases in the coming years, but yes, costs will surely go down.

Do you think investors need to change the way they think about mining companies now?  I mean, obviously traditionally investors look at mining companies and they look at how much reserves they’ve got and what the production is and what the price of the commodity is.  Should investors think about mining companies differently now and think about them more as technology businesses. 

SC:  Ultimately, before you look at what type of technology a firm has, you need to observe whether they’re actually an efficient company already.  Even before having technology and operations, investors need to see whether investors need to see whether a specific company is stringent in its expenditures, whether they have good governance, whether their plans for the coming years are in line with what the market demands.  For example, whether specific companies are investing in commodities of the future instead of traditional commodities like coal and iron.  Are they investing in things that would be required in electric vehicles, for example, are they investing in cobalt that is used in these electric vehicles?  Are they investing in copper, higher-grade steel or aluminium? 

These obviously need to be looked at by investors and of course, technology is in addition to that.  But I wouldn’t say technology is the main thing you need to look at.

Can you see a time when virtually no human beings are working in mines in the future, they’re all kind of behind computers somewhere, operating the autonomous vehicles and so on?

SC:  Well, the future is actually here if you want to say that.  For example, Rio Tinto is coming up with its new Koodaideri Project.  It is not only the world’s first fully paperless mine, it’s also going to be the world’s first people-less mine, if you put it that way.  It’s going to be the smartest mine built so far in the world and it’s going to have all sorts of automated trucks, sensors, drills, everything automated.  Yes, so the future is here already.

It’s going to be a people-less mine, is that right?

SC:  Yes.  There won’t be drivers in the trucks in that mine, there won’t be any people drilling into the ground anymore, everything is going to be controlled by air control loop, optimisation, far away in an operating centre in Perth possibly.  Yes, that mine is not going to have many people.

Fascinating.  Thank you very much, Sabrin, it’s been interesting to talk to you.

SC:  Thank you, my pleasure.

Happy Birthday, Sting, A.K.A Gordon Sumner.  He turned 67 on Tuesday.  Now, of course he was the front man for the Police, and you probably didn’t know this but he wrote a song about me watching the markets – every move you make, I’ll be watching you!

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That’s all from me, have a great week!

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