On July 25, BHP turned the first sod on what will become its biggest producing iron ore mine at its new South Flank mine in the Pilbara.
Situated approximately 100 kilometres north-west of Newman and part of the company’s Mining Area C hub, the development involves clearing 16,257 hectares of land for an open-cut mine, associated infrastructure, an overland conveyor, accommodation villages and a rail spur.
It will replace the 80 million tonnes the company extracts at its nearby Yandi mine.
All up, around 2,500 jobs will be generated during construction and around 600 permanent workers will be needed in ongoing operations.
This is further confirmation of the recovery which is under way in resource sector investment. To be sure, Australia is unlikely to see anything like the resource investment boom of the early part of the decade anytime soon. Nevertheless, confidence and investment are returning to the sector.
At first glance, the numbers look outstanding. Over the 12 months to March, the dollar value of new work commenced on construction of oil, gas, coal and other mineral exploration facilities came in at $20.6 billion – well up from the $12.8 billion or $13.9 billion recorded in previous years to March 2017 and 2016 respectively.
BIS Oxford Economics Senior Researcher Adrian Hart cautions that these figures are misleading as they include an $8.3 billion one-off spike in oil and gas commencements during the September quarter associated with the Shell Prelude floating LNG project.
Strip out the statistically volatile oil and gas sector, however, and Hart says the trend is still positive. In coal, for instance, the value of commencements rose from $3.6 billion in the year to March 2017 to $4 billion in the 12 months to March this year. Over that same time frame, commencements in other minerals increased from $3.6 billion to $3.9 billion.
In a similar vein, the value of construction work done increased from $4 billion to $4.4 billion in coal (year-on-year, year to March 2018) and from $3.6 billion to $4 billion in other minerals.
All this is being driven, Hart says, by the world economy, which is growing strongly despite negative headlines about trade wars. This, he says, is feeding through into greater demand for commodities, higher commodity prices and more favourable operating conditions for miners.
According to the Reserve Bank, the world economy is currently growing at around four per cent per annum. Compared with the same time last year, meanwhile, RBA data indicates that commodity prices were up 12.1 percent in July.
“In all instances, whether you look at commencements or work done, it’s all positive – it’s rising,” Hart said.
“Prices are good, the global economy is still strong. Miners have realised that after a period sitting on their hands, they have to start investing again. That’s what we are seeing coming through.”
Outside of new investment, trends are positive in other areas.
Whilst exploration activity in petroleum has coming off the boil following strong activity several years back, that in other minerals is coming back. On a seasonally adjusted basis, 2,299 kilometres of ground was blasted through for mineral exploration (other than petroleum) in the March quarter of 2018. This is up by 16 per cent compared with the previous corresponding period one year earlier and by 60 per cent compared with the March quarter of 2015.
As well, production and maintenance activity are rising. In the 12 months to March, ABS data indicates that mining output rose by 4.1 per cent to come in at a record $26.142 billion in the March quarter (seasonally adjusted).
This, Hart says, is being driven by several factors. Courtesy of the investment boom earlier this decade, there are now more mines which are in production and need maintaining. In addition, the improved commodity prices have seen some facilities which were mothballed in the middle part of the decade starting back up. Maintenance activity, as well, is being helped along by the higher prices as companies are more willing to spend to keep their facilities in shape to capitalise on the better conditions.
All this is benefiting the sector’s workforce. Compared with the same period one year earlier job advertisements for oil and gas – production and refinement, and oil and gas – exploration and drilling were up almost threefold and more than twofold respectively in the three months to July, according to job search web site Seek. Job ads for mining – engineering and maintenance, surveying, management, mining – operations, health and safety, oil and gas – drilling and power generation and distribution and mining exploration are all surging.
Pay packets, too, are going through the roof. Compared with the same period last year, salaries for mining – oil and gas are up a whopping 45 per cent. Those for mining – drill and blast, mining exploration – geoscience, surveying, mining – operations, oil and gas – operations, mining – engineering and maintenance and natural resources and water are all on the rise.
According to Hart, the biggest lift in investment will come from iron ore. Having spent only $1.8 billion on investment during the trough of 2016/17, BIS anticipates that investment on new and upgraded iron ore facilities will hit six billion by 2020. This will happen, he says, as the big three (BHP, Rio Tinto, Fortescue) move ahead with projects which are aimed at sustaining or adding a little extra capacity to capitalise on higher prices.
Beyond that, Hart also sees activity in other areas. This includes gold and mineral sands as well as other metal ores such as lithium – the latter of which is seeing a significant ramp of investment to capitalise on demand for batteries.
Will Donald Trump derail all this in a tweet?
Hart acknowledges that there are risks but says these are concentrated in areas which lie beyond trade wars and tweets.
One risk, he said, would be a ‘hard landing’ in the Chinese economy, which has undergone significant expansion underpinned by high volumes of debt.
The probability of this happening, he says, is thankfully low.
Beyond that, there is a further likelihood that world economic growth rates will eventually moderate once interest rates in the US begin to rise.
As for trade sanctions, Hart says there is only so far that the US and China can go.
Australia’s mining sector will not see the level of investment witnessed in the early part of the decade anytime soon.
Nevertheless, investment, production and maintenance activity are all picking up.