Mining Bust ‘Hardly Begun’: BIS

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Monday, November 24th, 2014
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An anticipated slowdown in resource sector investment has barely began and will have a major impact on the Australian economy albeit with a ramp up in output as the mining boom moves into the production phase meaning that sector’s contribution to GDP will continue to grow strongly in absolute terms and that opportunities will emerge in operational and maintenance roles, according to the latest research.

In the latest version of its Mining in Australia 2014 to 2029 report, international research firm BIS Shrapnel says the full impact of the slump in resource related investment will start to hit as a large number of oil and gas projects draw toward completion, with resource construction investment set to drop back 40 percent from its peak in 2013/14.

“In terms of the mining investment bust, we have hardly begun – this has a long way to run,” BIS researcher Adrian Hart said, adding that with public spending set to fall further and generally subdued economic conditions outside of the housing sector, the importance of an anticipated ramp in in public infrastructure projects cannot be understated.

“While investment has already fallen sharply across coal, iron ore and other commodities, it was the boom in gas which drove the peak in investment in 2013/14. Indeed, without oil and gas, mining investment would have fallen 25 per cent in the last financial year. However, the completion of a range of large gas projects on the east and west coasts will be the key driver of the long slump in investment from here.”

Moreover, BIS says miners themselves should expect ‘less than ideal conditions’ in coming years as multi-year low prices of commodities such iron ore and coal remain low and ‘hard choices’ on operational volatility need to be made.

BIS’s comments come amid increasing signs of a shrinking pipeline of resource sector investment, with most of the mega projects started during the 2010-2012 boom more than now halfway through and little in the way of new developments coming through to replace these as they wind down.

Having spiked in recent years, ABS estimates of long term capital expenditure (more than twelve months out) are now sitting at four year lows.

Despite this, BIS Economist Rubhen Jeya says some opportunities will arise in areas such as operations, maintenance and export as many of the megaprojects enter the production phase and the overall value of resource sector output grows by around a third over the next four years.

“Overall, contractors and suppliers to the mining industry should note that the end of the current boom in mining investment still presents opportunities in other parts of the mining boom, which are still unfolding: operations, production and maintenance,” Jeya says. “And, eventually, global efforts to slash investment in response to currently weak prices will itself help create the price conditions for new investment cycles in future.”

“The challenge is to make the right strategic choices today to take advantage of the opportunities as they come along, commodity by commodity, region by region, in what will remain a highly cyclical industry.”

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