Aussie Mining confidence plumbs the depths

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Mining confidence plumbs the depths
THE AUSTRALIAN JULY 29, 2014 12:00AM

Sarah-Jane Tasker

Reporter
Sydney
Executives on their prospects
Executives on their prospects Source: TheAustralian
CONFIDENCE in Australia’s mining sector has hit a new five-year low as industry leaders express disappointment at the Abbott government’s failure to deliver on election promises to boost the sector.

The latest Mining Business Outlook report has revealed an overwhelming 93 per cent of leaders are not optimistic about their growth prospects for the next 12 months, up by more than 50 per cent compared with last year.

A further 82 per cent are not confident of large-scale projects resuming in the next 12 months, predicting it will take at least three to five years to see any new projects developed.

David Hand, managing director of report authors Newport Consulting, said most of those surveyed said they were finding it almost impossible to get a new mining concession up and running through the wheels of bureaucracy this year.

“There is a significant political element in that — opening a mine does not win you votes in 2014,” he said.

Mr Hand said the industry had welcomed the change of federal government last year but it had yet to see the Abbott government pull the levers that it could to help the industry go forward.

“There is enormous bureaucracy in the mining industry today, filling out reports for government agencies who are simply wanting to have the information so that they themselves can sell to a sceptical public that the mining industry is not destroying the world,” he said.

“The mining sector is covering the cost of that in its entirety.”

The chief operating officer of a listed bauxite company said in his interview for the report that the industry expected big changes but had seen little action from the government.

“We want action, and ask the government to deliver on their promises.”

The annual report, in its fifth year, shows that 70 per cent of mining leaders anticipated substantial changes to the sector in the new government’s first year but says that they have not seen adequate action yet or election promises delivered.

The sector wants more assistance with industrial relations laws and a fast-tracking of the promised infrastructure investments.

“The consensus among mining leaders was that the regulatory environment is tough, with too many hoops to jump through for mine development approvals,” the report said.

“They maintained that the approvals process takes too long — many, many years in some cases — and is hurting the industry.”

The report, which drew on in-depth, face-to-face interviews with 60 mining executives from a range of private and publicly listed companies, found that nearly all mining leaders did not see any opportunities — only challenges.

Last year seemed to represent a new low in mining sector confidence, but this year the situation is worse, the report reveals.

“We are witnessing the real impact of the mining sector’s slowdown — not just on the industry at large, but on Australia’s declining terms of trade and on the whole economy,” the report said.

Mr Hand told The Australian yesterday that he was surprised how pessimistic the industry leaders were.

“I believe that the issue is maybe people didn’t believe commodity prices would stay low for the sustained period that they have or maybe people were of the view that they could do something about it,” Mr Hand said.

He added that in this year’s interviews, the industry leaders were all focused on external factors they did not control, such as commodity prices, improvements in demand and friendly government relations.

“They need the price to rise or demand to increase and, if those things don’t happen, then I think you will see mines coming to the end of their lives close; ones that require investment will go into care and maintenance, and you will see a contraction in the industry, particularly in thermal coal,” Mr Hand said.

Iron ore, metallurgical coal and some of the base metals had better outlooks, he said, but he added that none of it was “rosy”.

“The cost equation around an Australian mine in 2014 is out of all proportions to similar mining ventures in other countries,” he said.

“It’s not just about low-wage economies but what the miners have to pay to get their goods shipped from mine to port,” he added.

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Mining confidence at five-year low
DANIEL PALMER JULY 29, 2014 8:15AM
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The mining sector is growing increasingly cautious about the future, with confidence in the local industry now at a five-year low, according to the latest Mining Business Outlook.

The study, conducted annually by Newport Consulting, discovered industry leaders were worried by weakening demand, softening prices and a challenging regulatory environment.

A majority of those surveyed indicated a belief the sector’s future is now out of their control, a sign of troubled times ahead.

In all, 93 per cent of respondents were not confident about growth in the coming year, while 82 per cent expressed pessimism about large-scale projects being committed to in the coming 12 months.

READ: Miners are living on borrowed time in Australia

Economist Saul Eslake suggested the next major projects for the sector would be at least three years away.

“I don’t expect any major new mining projects to commence in the next few years,” he said.

“There is wide consensus that commodity prices will continue to decline as more supply comes on stream globally, while the growth rate of demand for commodities slows.

“Economic growth will continue at a below-trend pace over the next 12 months, and unemployment will continue to rise.”

Newport Consulting’s managing director, David Hand, said the outlook from senior executives in the mining industry hinted at a sector that had completed its slimming-down period and was now waiting for an uplift in the market environment.

“Mining leaders are telling us they’ve done all they can to address their business performance, as demonstrated by large cost-cutting exercises and job retrenchments,” he said.

“Leaders are demanding better business conditions for confidence to return.”

The industry is chasing less red tape, better infrastructure and more flexible workplace laws to aid growth.

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Thousands of mining jobs to go
THE AUSTRALIAN AUGUST 15, 2014 12:00AM

Ewin Hannan

Industrial Editor
Melbourne
MINING industry employment is forecast to slump by 4.5 per cent over the five years to 2018, with more than 16,000 jobs to be lost across exploration, metal ore and coalmining.

New analysis released by the federal Department of Employment describes the predicted ­decrease as a “significant slowdown’’ compared with the 106,700 jobs created in the mining industry in the five years to May this year. It says the projected decrease will ­result in 6200 jobs being lost in metal ore mining, 5400 positions in exploration and 5100 jobs in coalmining. Employment in construction material mining is projected to increase slightly by 300 in the five years to 2018.

Mining employment almost doubled in the five years to May 2012 as the industry responded to historically high mineral prices by expanding output and building new capacity

“Since May 2012, employment growth has stalled, growing by only 4000, or 1.5 per cent over the 12 months to May 2014 as mineral prices have fallen, construction ­activity has plateaued and operating costs are being scrutinised intensely,’’ the report says.

“Weaker confidence and the deferral of a number of major resource projects have also been caused by slower growth in demand from China and lower commodity prices.’’

Jobs growth in the mining sector over the past five years was, as expected, concentrated in Western Australia, where it grew by 50,000, Queensland, which was up by 28,400 and NSW, which ­increased by 10,300.

However, over the past two years, while overall mining employment across Australia has remained steady, it has fallen by 13,300 in Western Australia and 7300 in NSW.

Mining jobs have increased in Queensland by 9900 over the past two years, largely driven by an increase of 8300 jobs in the oil and gas extraction sector.

The department attributes the Queensland increase to the development of coal-seam gas fields to feed the Curtis Island liquefied natural gas export terminals that are under construction.

Employment Minister Eric Abetz said the report’s findings demonstrated the “urgent need to encourage further investment and development in the industry starting with the abolition the failed mining tax’’.

“The mining tax is destroying jobs and discouraging investment,’’ Senator Abetz said. “It is ­effectively working as a reverse tariff on Australian jobs.’’

He called on the Senate to scrap the tax.

According to the report, ­median weekly earnings of full-time employees in mining last year were higher than for any other ­industry — $2071 compared with $1152 across all industries.

All of the sectors within the mining industry had median full time weekly earnings above the all industries median, with weekly earnings ranging from $2493 in oil and gas extraction down to $1500 for construction material mining.

Overall, a high proportion of mining workers were higher skilled, with 63 per cent having ­attained a Certificate III level qualification or higher.

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Vultures???

Mitchell returns to pounce on ‘cheap assets’
THE AUSTRALIAN AUGUST 25, 2014 12:00AM

Matt Chambers

Resources Reporter
Melbourne
umag socials - Gambaro Mud Crab Cup Lunch
Nathan Mitchell, with his wife Rebecca, sees signs of green shoots in the drilling sector. Picture: Sarah Marshall Source: News Corp Australia
QUEENSLAND’S wealthy Mitchell family is returning to the local resources drilling sector where it made its fortune in the belief the industry has turned and it is time to snap up cheap assets.

Nathan Mitchell says the family exited at the top when it sold the 39-year-old Mitchell Drilling to AJ Lucas in 2008 for $150 million, and it is now getting back in at the bottom. And they are being backed by some other big names.

Robert Millner’s Washington H Soul Pattinson is a major shareholder in the recently listed Mitchell Services, while the nation’s biggest listed fund, Australian Foundation Investment Co, and private equity firm Ironbridge are understood to be part of a $20.2m capital raising announced last week to acquire Tom Browne Drilling Services from receivers.

“If six o’clock is the bottom of the market, we’re probably at seven o’clock,” Mr Mitchell told The Australian. “It’s not booming but I think we’re coming out of it, we are seeing an improvement in tendering and requests for rigs — so green shoots.”

The drilling sector has been one of the hardest hit by the mining downturn. Not only has exploration spending dried up, but the big miners have all been on productivity drives, with squeezing contractors high on their list of cost-saving initiatives.

But there is a growing feeling it could be time to start getting back in, evidenced last month when private equity buyout firm ­Centerbridge Partners took a 13 per cent stake in embattled driller Boart Longyear.

The timing is good for the Mitchells, with a five-year non-compete clause in the AJ Lucas contract expiring last year.

“I’ve been in the business 25 years and the Mitchells have been in it 45, so we know the cycle goes down but it always comes back,” Mr Mitchell said. “September last year was what we thought was the bottom and it coincided with the end of the non-compete.”

On Friday, Mitchell Services agreed to pay $9.5m for Tom Browne and its fleet of 29 onshore dill rigs from receivers. Mitchell said an independent June valuation of the assets came in at $53m. “Drilling is a very asset-intensive business so normally you need a lot of forward contracts to justify investment,” Mr Mitchell said. “Buying Tom Browne gives us the rigs to move forward and take on the market when it comes back, that was the principle of buying.”

In November, the Mitchell Group came back into the local drilling business by taking a 30 per cent stake in struggling listed company Drill Torque through a capital raising and scrip sale of their Mitchell Services business to Drill Torque. Drill Torque was then renamed Mitchell Services and Mr Mitchell made executive chairman.

Soul Pattinson was already a major Drill Torque shareholder and since the Mitchells came on board has been raising its stake, as it will in the coming raising.

The capital raising, which is for nearly 50 per cent more than the company’s entire current market value of $14m, will be used to acquire Tom Browne, pay down debt and provide working capital.

It is understood that AFIC, Ironbridge and Acorn Capital are taking part in the raising.

Ironbridge is no stranger to the drilling sector, having in 2010 sold the Easternwell drilling business, which it set up through merging six smaller businesses, to Transfield for $597m.

Mr Mitchell said the major ­opportunities he saw were in coal and precious metals.

“The minerals industry has been down for a while and our feeling is it is starting to come back,” he said.

“The renewed activity is coming from both the tier-one miners and some of the juniors, so it’s good to see a 50-50 mix.”

Queensland’s coal-seam gas industry was dominated by the major drillers, making it a less ­appealing sector to move into, he said.

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Iron ore, oil price slump add to pressure on resources sector
THE AUSTRALIAN AUGUST 27, 2014 12:00AM

Barry Fitzgerald

Resources Editor
Sydney

EARNINGS pressure points for the resources industry are becoming more intense, with price weakness in iron ore extending to a 34 per cent slump since the start of the year and oil prices falling sharply to eight-month lows.

Iron ore as measured by the Steel Index fell below $US90 to $US89.20 a tonne, threatening to match previous low points in mid-June this year and September 2012.

But those low points were brief, with fears increasing that the steelmaking raw material is now headed for a sustained period of five-year lows, taking down earnings of Rio Tinto, BHP Billiton and Fortescue, and threatening the viability of the higher-cost producers.

Meanwhile, oil price weakness has put the market on fresh alert for the earnings impact of oil’s 13 per cent price retreat in the past two months to $US93.57 a barrel (West Texas). The fall is despite increased geopolitical tensions in the Middle East and the Ukraine and means oil is trading close to $US7 a barrel below its 12-month average.

Weakness in oil has been put down to a supply response by the swing producer Saudi Arabia to a production shortfall in the Middle East that did not eventuate, ­according to analysts at Morgans.

In addition, the shale production boom in the US has driven ­production in the world’s biggest consumer to the highest levels in 28 years, sending imports to two-decade lows.

The retreat in the Australian dollar from the 2013 financial year average of $US1.03 to US92c in the 2014 financial year is softening the revenue impact of the price weakness in the key commodities.

But the dollar’s recent improvement to just below US93c has signalled dollar weakness is not something producers can rely on. Iron ore averaged $US135 a tonne last (calendar) year and $US111 in the 2014 June half. Should $US90 a tonne become the average for the next 12 months, the industry would face a $US31 billion revenue hit, Can­berra’s tax receipts and Western Australian royalties whacked in the process.

The sharp price retreat is a ­response to continued sluggish growth in demand in China when seaborne supply is growing sharply, particularly from Australian suppliers. The great hope of the producers is that China’s high-cost domestic producers — it is about 35 per cent self-sufficient in iron ore — fall by the wayside as it becomes increasingly cheaper to import rather than produce.

Baillieu Holst analyst Adrian Prendergast forecast yesterday that iron ore prices would recover to $US100 a tonne-plus late this (calendar) year because of the ­impact of supply curtailments and Chinese steel mill restocking ­activities offsetting increases in iron ore supply.

He warned that, rather than the sharp spot price recovery in the last big sell-off in late 2012 (triggered by a resumption of spot demand in seaborne markets), the recovery from the current sell-off “may be more gradual’’.

He said the majority of high-cost iron ore miners (mostly Chinese) were operating at losses at an iron ore price of $US90 a tonne. “As a proportion of aggregate supply, as much as one-third of the global iron ore supply chain is now in losses (or about 450 million ­tonnes of annual production).

“While a percentage of this high-cost Chinese iron ore supply is unlikely to be taken offline des­pite being in losses (as they are ­attached/integrated with steel mill operations), we estimate as much as half of the total high-cost supply is at risk of curtailment given current iron ore prices.

“Anecdotal evidence suggests a supply response has started, but we expect it will take some time to grow in magnitude. In the meantime, we expect spot prices will ­remain volatile.’’

Oil’s price fall is also being seen as potentially short-term.

Morgans said it expected prices to improve once Saudi Arabian production levels were cutback, expected in the second half of the year.

“We forecast a 17 per cent upside to current oil prices,’’ Morgans said.

“In early 2014, the oil market was spooked as the crisis between Russia and Ukraine escalated, compounded by ongoing tensions in Iraq.

“Saudi Arabia increased production to 10 million barrels a day to head off the shortfall of ­expected Russian and Iraq ­exports, but by the end of June ­neither had lowered production.’’