Let’s hope its not yet the end of the mining boom with the recent decline of prices for minerals which has caused the cancellation of so many big investments of being made by companies in Australia.
From The Wall Street Journal
18 September 2012
SYDNEY—Falling commodity prices forced the government to cut its fiscal-year revenue forecast for mining and energy exports by 20 billion Australian dollars (US$21 billion), intensifying gloom in the mining sector as companies attempt to restructure debt and rethink billions of dollars of new investments.
Canberra on Tuesday scrapped expectations for another year of record export revenue from mining and warned that up to A$230 billion of new investments could be at risk unless the industry can cut costs and boost productivity.
In a sign of the sector’s strain, Australia’s Fortescue Metals Group Ltd. said it secured US$4.5 billion in debt to refinance loans and stave off a potential asset sale, following this month’s sudden fall in iron-ore prices.
Australia has relied on the mining industry to shield the country from the economic headwinds buffeting Europe and the U.S. China’s spending boom on infrastructure following the financial crisis in 2009 had pushed up commodity prices, fueled growth in Australian resources companies’ profits and spurred investment in projects ranging from gas-export terminals to vast new iron-ore pits.
On Shaky Ground
Take a look at mining-related projects that have been deferred or stopped in Australia this year.
But pressure on Australian mining companies is growing. Economic growth in China, Australia’s biggest trading partner, has slipped to its slowest rate since 2009 and China’s manufacturing exports are falling.
That has driven down the price of coal for electricity to half its mid-2008 peak, and iron ore’s price hit a three-year low this month. Iron ore and coal are Australia’s two biggest exports, respectively.
Employees in the maintenance workshop at Rio Tinto’s copper and gold mine in Parkes, New South Wales, Australia.
New Hope Corp., one of Australia’s largest coal miners, said Tuesday that it might delay plans to expand a coal mine and build new ones in Queensland up to a year and hasn’t ruled out job cuts. Heavyweights Xstrata PLC and BHP Billiton recently moved to cut costs, including by laying off workers.
“Although this is not good news, it is by no means a death knell for the Australian resources industry,” Australia’s resources minister, Martin Ferguson, said Tuesday at a conference in Canberra.
Australia’s Bureau of Resources and Energy Economics forecast that export revenue from minerals and energy for the fiscal year through June would fall 2% from the past fiscal year to A$189 billion. Three months ago, the government forecast A$209 billion in revenue.
The stakes are high as Australia’s minority center-left Labor government is depending on mining taxes and royalties to return the national budget to a slim surplus by mid-2013 ahead of elections. The government in May announced a A$33 billion public-spending savings package to reach the budget target.
Mr. Ferguson said the resources sector in Australia will continue to prosper as more than A$270 billion of investment already is locked in—mostly for the construction of terminals to supply Asia with liquefied natural gas.
A question now is whether Australia can capitalize on the next wave of demand growth for iron ore and coal. The government is working with the resources industry to upgrade infrastructure, expand the pool of skilled workers and improve productivity, Mr. Ferguson said. “If we do not make progress on these fronts, Australia will not grab that second investment pipeline of up to an additional A$230 billion,” he said.
Some investors are betting that China will lead a recovery in commodities markets by stimulating its economy. Beijing in recent days approved dozens of infrastructure projects, such as subways and highways, which Nomura estimated would add up to one trillion yuan, or roughly US$150 billion, of investment over four years. That news contributed to a mild rebound in prices for iron ore and of Australian mining companies’ stock.
China’s economic slowdown is showing signs of reaching a bottom and could pick up before year-end, said David Peever, the head of Rio Tinto‘s Australian unit. “The government [is] letting the hand brakes off. This is a good sign…and we should start to see a rebound in demand,” he said.
—David Winning in Sydney contributed to this article.