The Chamber of Minerals and Energy of Western Australia
The WA Resources Sector
- Opportunities and Challenges
Presented by Reg Howard-Smith
Chief Executive
NATSTATS 2010 Conference
16 September 2010
The WA Resources Sector
Major driver of the state economy:
Resource Breakdown – % Value of WA Minerals
and Petroleum Industry
Base Metals 2%
• $70.9 billion in production value
Heavy Mineral Sands 1%
Alumina 5%
(Growth of 14% per annum over last decade)
Nickel 6%
• 89% of the State’s merchandise export income
• $3.2 billion in State royalties
Gold 9%
Iron Ore
48%
• 77,000 people directly employed in mining + petroleum
Petroleum (including LNG)
27%
• Mining component of WA GSP: 27%
Source: Department of Mines and Petroleum Value of WA’s Minerals and Petroleum Industry 2009-10
WA Department of Treasury and Finance, State Budget 2009/10
16/09/2010
www.cmewa.com
2
Western Australian Resources
- National Significance
Last year, the WA resources sector accounted for:
• 48% of Australia’s total value of mineral and petroleum sales
• 65% of Australia’s oil and condensate production
• 75% of Australia’s gas production
• 55% of Australia’s mineral exploration expenditure
• 76% of Australia’s petroleum exploration expenditure
• 61% of total national mining investment
Source: Department of Minerals and Petroleum website; October 2009
Source: WA Department of Mines and Petroleum Statistics Digest 2008-09
16/09/2010
www.cmewa.com
3
Export Destinations for WA Resources
Iron ore exports
Petroleum exports
Source: Department of Mines and Petroleum – Statistics Digest 2008-09
16/09/2010
www.cmewa.com
4
Export Destinations for WA Resources
Gold exports
Alumina exports
Source: Department of Mines and Petroleum – Statistics Digest 2008-09
16/09/2010
www.cmewa.com
5
Export Destinations for WA Resources
Nickel exports
Mineral Sands exports
Source: Department of Mines and Petroleum – Statistics Digest 2008-09
16/09/2010
www.cmewa.com
6
Urbanisation in China
China is likely to develop 20 major economic zones involving 358 cities (11 >15m, 18 > 10m people)
Source: MCA OZMine (Indonesia) presentation, data from
Rio Tinto, BHP Biliton, NDRC, January 2008
16/09/2010
www.cmewa.com
7
India’s Change in Middle Class Household Incomes
Source: MCA OZMine (Indonesia) presentation
16/09/2010
www.cmewa.com
8
New Resource Projects in Western Australia
Gas & LNG:
8 projects -
$114b
16 projects -
$37b
Processing:
3 projects -
$7b
Port/rail/water
2 projects -
$5b
Oil:
3 projects -
$4b
Other minerals:
3 projects -
$3b
Power:
3 projects -
$2b
Iron ore:
TOTAL:
$172b
Source: Department of State Development, April 2010
16/09/2010
www.cmewa.com
9
Major Project Timeline
16/09/2010
www.cmewa.com
10
Committed Projects
Cossack/Wanaea Oil&Gas - $1.8b
North Rankin LNG - $5b
Pluto LNG - $12b
Brockman Syncline 4 Iron Ore - $2b
Gorgon LNG - $43b
Rapid Growth 5 Iron Ore - $5.3b
Sino/Citic Iron Ore - $5.2b
Mesa A/Warramboo Iron Ore - $1.2b
Karara Iron Ore - $1.8b
Worsley Alumina - $2.5b
Source: DMP Prospect Magazine 2010
16/09/2010
30/06/2016
www.cmewa.com
11
Under Consideration
Browse LNG Precinct - $30b
Wheatstone LNG - $3b
Macedon Oil & Gas - $1b
Various Pilbara Iron Ore Projects - $14.5b
Spinifex Ridge Molybolenum/Copper - $1b
Mid-West Iron Ore Projects - $2.26b
Yeelirrie Uranium $TBA
Oakajee Port and Rail - $4b
Tropicana Gold - $700m
Coal to Urea Fertiliser Plant - $3.5b
Source: DMP Prospect Magazine 2010
16/09/2010
Southdown Magnetite - $1.6b
30/06/2016
www.cmewa.com
12
Demand for Labour
•
•
•
National Resources Sector Employment Taskforce Report released.
Population and immigration prominent issues in Federal Election campaign.
Looming demand for labour must not be lost in the debate.
– Significant labour shortages during the last expansion
– Approximately 60% of job vacancies in trades essential for constructing and operating
resources projects
– Latest employment projections for Pilbara substantially higher than pre-GFC trajectory*
Source: Planning for Resources Growth in the Pilbara: Revised Employment and Population Projections to
2020, Pilbara Industry’s Community Council April 2010
16/09/2010
www.cmewa.com
13
Demand for Labour
Absolute growth and historical scenarios
600
TIAC projection
500
thousand persons
CCIWA projection
400
Access projection
300
Linearised historic growth (2000-08)
200
100
0
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
Source: ACIL Tasman analysis based on TIAC, CCIWA, Access Economics, and ABS Catalogue 3101 data
16/09/2010
www.cmewa.com
14
Demand for Labour
•
Factors affecting labour availability
•
– Low unemployment rate
– Ageing population
– Supply of community infrastructure
– Fly in-fly out patterns
Population growth critical
Origin of FIFO workers in 2008
Source: District Survey Data with extrapolated growth, GEM Consulting Analysis (Chamber of Minerals and Energy, 2008 )
16/09/2010
www.cmewa.com
15
Demand for Labour
Immigration critical for population growth
Population flows by type, Western Australia, by quarter 1999 to 2009
Persons
20,000
Net Interstate Migration
Net Overseas Migration
15,000
Natural Increase
10,000
5,000
0
-5,000
1999
2002
2005
2008
Source: ABS Catalogue 3101.0 Table 4
16/09/2010
www.cmewa.com
16
Demand for Infrastructure
Summary of infrastructure adequacy, by region
Current infrastructure adequacy
Medium term infrastructure adequacy
Region
Water
Energy
Transport
Land & Housing
Water
Energy
Transport
Land & Housing
Kimberley
Sufficient supply*
Sufficient supply
Meets demand
Shortage
Sufficient supply*
Meets demand
Shortage
Shortage
Pilbara
Meets demand*
Meets demand*
Meets demand
Shortage
Shortage
Shortage
Shortage
Potential
Potential shortage
inefficiencies
Sufficient supply
Potential
deficiencies
Mid West–Gascoyne
Meets demand
Shortage
Meets demand*
Sufficient supply
Shortage
Shortage
Perth–Peel
Meets demand
Meets demand
Meets demand*
Meets demand
Shortage
Meets demand
Shortage
Potential shortage
South West–Great Southern
Meets demand
Sufficient supply
Meets demand*
Sufficient supply
Shortage
Sufficient supply
Shortage
Sufficient supply
Meets demand
Meets demand
Meets demand*
Sufficient supply
Meets demand
Meets demand
Goldfields–Esperance and
Potential
Wheatbelt
Potential shortage
inefficiencies
Potential distribution/supply issues may exist
Note: Trend is assessed by evaluating the impact of projects (committed or under construction) on each region
16/09/2010
www.cmewa.com
17
Need for Foreign Investment
•
The Australian resources industry is heavily
driven by foreign investment in the
exploration, development and production
stages.
•
The Foreign Investment Review Board’s
2009 Annual Report showed there were
$90.6 billion of approvals of proposed
investments in mineral exploration and
development ($64.3 billion in 2007-08)
•
Mining, above all other industries, relies on
foreign investment. In 2008, direct foreign
investment in the mining industry was ~
$100 billion.
•
The USA, UK and Japan are the biggest
investors in Australia (all industries).
Source: Foreign Investment Review Board Annual Report 20089, Table 2.4: Total approvals by industry sector in 2008-09; ABS: 53520 - International
Investment Position, Australia: Supplementary Statistics, 2008 - Table 15a. Foreign Investment in Australia(a): Level of Investment at 31 December 2008 by
Industry Division (ANZSIC), Direct Investment in Australia
16/09/2010
www.cmewa.com
18
Resources Rent Tax
CME has always maintained a strong preference for retention of the current state regime,
administered by the state government with revenues flowing to the state.
Notwithstanding, CME has supported genuine reform of the Australian taxation system and
argued, in relation to any consideration of a federal tax on resources, that it should:
– be prospective, that is, apply to only new investment
– protect Australia’s international competitiveness
– be differentiated by resource commodities
– be levied on primary resource value
While CME welcomes the removal of the Resources Super Profits Tax (RSPT) and
acknowledges the progress under the proposed Minerals Resource Rent Tax (MRRT), there
still exists a number of fundamental issues, key amongst them the impact on Australia's
international competitiveness.
16/09/2010
www.cmewa.com
19
International Competitiveness
Under the MRRT, the ~45%overall1 effective tax rate will make Australia one of the
highest taxed mining jurisdictions in the world for iron ore and coal.
Country
1.
2.
Effective Tax Rates2
Australia (RSPT)
58%
Australia (MRRT)
~45%1
USA
40%
Brazil
38%
South Africa
33%
Peru
32%
Russia/China
30%
Chile
26%
Canada
23%
Calculated as follows: MRRT rate of 30% less the extraction allowance of 25% = MRRT effective tax rate of 22.5%. Plus corporate tax of 30% less deduction for MRRT paid =
total effect tax rate of 45.75%. Applying to pre-mine gate activities and assuming no starting base deductions of uplift at LTBR + 7%
Source: Minerals Council of Australia, www.keepmining.com.au (no longer available), with reference to Citigroup Mining and Metals Research. Research Note 2 may 2010.
Note these effective rates are not specific to iron ore or coal production.
16/09/2010
www.cmewa.com
20
Australia’s Competitiveness
• Resource Rent Taxes, introduced without consultation, have a significant impact on a
jurisdiction’s attractiveness to investment.
• The Fraser Institute’s 2010 mid-year mining survey, taken while the RSPT was still on the
table, showed the following with respect to exploration investment attractiveness:
– The average score of the Australian states declined from 62.9 out of 100 in the
2009/10 annual survey to 40.9 in this survey up date.
– The average rank of the Australian states fell to an average of 31st out of 51
jurisdictions in the update from 18th in the 2009/2010 index.
– Both Nevada and Quebec also suffered drops in their attractiveness to investment
due to attempts to introduce resource rent taxes, in Quebec's case without
consultation.
Source: The Fraser Institute Survey of Mining Companies: 2010 Mid-year Update was sent to approximately 3,000 exploration, development,
and other mining-related companies around the world. The survey, conducted from June 1 to June 30, represents responses from 429 of
those companies; 51 jurisdictions were ranked.
16/09/2010
www.cmewa.com
21
The way forward
• Need to focus on a vision for state and regional Western Australia
• Need for an infrastructure planning response from government and
industry
• Skilled labour remains a critical issue
• Tax policy settings which support growth and international
competitiveness
16/09/2010
www.cmewa.com
WA Commodities Relative to World Production
Alumina
Diamonds
Garnet
Gold
Ilmenite
Iron ore
LNG
Nickel
Rutile
Salt
Tantalum
Zircon
0%
10%
20%
30%
Western Australia
16/09/2010
40%
50%
Rest of Australia
www.cmewa.com
60%
70%
80%
90%
100%
Rest of World
23