MINING injects billions of dollars into the NSW economy every year, creating thousands of jobs and generating strong capital investment.
In 2010-2011, NSW minerals production, which contributes about 2.5 per cent of the gross state product, was valued at approximately $20 billion.
However, the NSW Minerals Council (NSWMC) believes that the controversial Carbon Tax introduced on July 1 could severely impact the state’s resource sector – particularly the coal industry, which currently contributes 81 per cent of the total value of the state’s mineral production – threatening economic growth and putting thousands of jobs at risk.With NSW home to the largest number of coal mines in Australia (the majority of the 74 operational mines in NSW produce coal), which already have to contend with the decline in thermal coal prices and increased capital costs, it is no wonder the industry has not welcomed the new tax. The state has some of the highest-quality coking coal operations in the world and, in 2010-2011, these produced a record 205 million tonnes of raw coal yielding 157mt of saleable coal. There are also a number of metal operations in NSW: copper, gold, silver, lead and zinc are all mined in the state, in addition to some industrial and construction materials. However, but it is coal that drives NSW’s resource sector.
According to NSWMC, the peak industry body representing the sector, mining would contribute $8.5 billion to the state’s economy through royalty contributions during the next four years. NSWMC chief executive officer Stephen Galilee said that coal mining provided an “economic safety net” for NSW: generating substantial income from exports.
“While NSW is not considered a mining state in the way that WA and Queensland are considered mining states, NSW is the original mining state,” he said.
“We’ve been exporting coal for well over 200 years and Australia’s first ever export cargo was from the Port of Newcastle.
“We have some of the world’s best coal deposits, as well as some very valuable deposits of some other precious metals.” However, Mr Galilee also said that the industry was now at risk due to contributing more money towards “new charges and levies to fund additional bureaucracy”.
He added that increased government regulations and the tightening of key global coal markets would place further strain on the sector.
“The industry is facing a period of uncertainty driven by an overall review of the state’s planning system and also strategic regional land use policies proposed by the State Government in which the exploration sector, in particular, is facing increased pressure from some sections of the rural community and also ideological opponents of mining, particularly coal mining,” he said.
“This has led to the Government increasing assessment requirements, costs and restrictions on exploration activity in NSW.”
Coal NSW contributes about 40 per cent of Australia’s total coal exports and has more than 16.64 billion tonnes of economically recoverable coal resources.
The total value of coal production in NSW in 2010-2011 was $16.2 billion.
The coal was mainly sourced from the Sydney-Gunnedah Basin, with smaller quantities found in the Gloucester and Oaklands basins.
There are five major coalfields within the Sydney-Gunnedah Basin: Hunter, Newcastle, Southern, Western and Gunnedah.
The Upper Hunter region contains about one third of the state’s coal mines, and generates the bulk of thermal coal used for electricity generation and export.
About 89 per cent of the total electricity needs in the state are met through locally-mined thermal coal.
There are currently 63 operational coal mines and 30 coal mine development projects under way in NSW.
Xstrata Coal is the largest coal producer in the state and the world’s largest exporter of seaborne thermal coal.
The company holds interests in more than 30 open cut and underground coal mines in Australia, South Africa and Colombia, plus exploration projects in Canada.
Xstrata Coal currently operates 11 coal mines in NSW, including the Ulan coal mine: one of the most established ventures in the Western Coalfields.
Covering 17,959 hectares, Ulan comprises two approved underground mining projects – one already in operation and one that is under construction – and an open cut coal reserve.
The company has proposed to expand the operation with a 239ha open cut mine and a longwall mine of about 25 square kilometres, to facilitate a combined production rate of up to 20 million tonnes per annum throughout a 21-year mine life.
It is expected to begin production later this year and will operate until around 2030.
Another significant NSW coal miner is BHP Billiton, which recently announced it would commit $833 million to open a new mining area at its Illawarra Coal business in order to sustain production.
The Appin mine is expected to be operational by 2016, and will replace production at the West Cliff mine.
BHP, which is the world’s largest producer of steelmaking coal, said the replacement mining area at the Appin mine would be able to produce 3.5mtpa, with an overall production capacity of 9mtpa.
“That’s welcome [news] but it is important to note that that approval will enable their operations to maintain their existing output rather than increase output,” Mr Galilee said.
There is also a range of other development projects currently under way in NSW and Mr Galilee said he believed that once government regulations had been finalised, the industry would see an increase in production and exports.
“According to recent statistics there has been an increase in exploration activity in NSW and we welcome that,” he said.
About half of the coal produced in NSW is exported to Asia: primarily to Japan, South Korea, Taiwan and China.
Mr Galilee said while the NSW coal industry maintained “healthy relationships” with its traditional export markets, it also had the ability to expand into markets such as India.
“We are geographically well placed in NSW and are very lucky that we are in close proximity to our very important, traditional and long-standing export markets of Japan and South Korea,” Mr Galilee said.
“We also have an ongoing and improving business relationship with supplying thermal coal into China and India, and other emerging economies of Asia.
“Obviously the level of economic growth in those parts of the world and the strength of their economies plays a factor in the level of demand for our commodities.”
Gold and copper NSW is currently Australia’s second-largest gold-producing state. It’s three major gold mines are: Newcrest Mining’s Cadia Valley operations near Orange in Central Western NSW; Northparkes Mines’ copper-gold mine near Parkes; and Barrick’s Cowal gold mine near West Wyalong.
In 2010-2011, gold produced in NSW was valued at about $1.3 billion while copper production was valued at $1.4 billion.
Newcrest is Australia’s largest gold producer and one of the world’s top-five gold mining companies.
Its Cadia Valley operations comprise: the Cadia Hill open pit mine (one of the largest open pit copper-gold mines in Australia); the Ridgeway underground mine; ore processing facilities capable of treating 2mtpa; and the Cadia East project, which is currently in development and will eventually increase the company’s ore processing capacity to 26mtpa.
The $1.91 billion Cadia East project involves the development of the massive Cadia East deposit as Australia’s first panel cave.
The mine will be the deepest panel cave in the world and Australia’s largest underground mine.
The Cadia East ore body is one of the world’s largest gold deposits. It has a mineral resource of 2.347bt containing 33.2/million ounces of gold and 6.59mt of copper, plus a current ore reserve of 18.7moz of gold and 3.16mt of copper.
The project will increase production at the Cadia Valley operations to between 700,000oz and 800,000oz of gold and from 75,000t to in excess of 100,000t of copper per year during the first 10 years.
First production is expected later this year, and it is anticipated that the mine will be in operation for the next 30 years.
“Newcrest Mining plays a very important role in the NSW minerals industry and contributes to the wealth that the mining sector generates to the state,” Mr Galilee said.Northparkes’ copper-gold mine, a joint
venture between Rio Tinto (80 per cent) and the Sumitomo Group (20 per cent), was the first mine in the country to use a variation of the block cave mining technique in its underground operations.
The company is currently undertaking a pre-feasibility study to evaluate the potential for further underground mining and processing facilities based on a series of large-tonnage, low-grade areas of mineralisation within the existing mining leases.
The minerals sector makes a significant contribution to the NSW economy, not only through its exports but also by providing investment, regional development and employment opportunities.
Mining currently creates 93,000 direct jobs and 325,000 indirect roles in the state, including about 27,995 people directly employed in NSW coal mines. According to Mr Galilee, the mining sector has had the fastest job growth of any sector in NSW during the past four years and he expected that this would continue to increase as development projects came into production.
He said that unlike in other mining states, the NSW mining sector didn’t have a big fly in, fly out (FIFO) workforce and was able to draw on local employment, thereby minimising the strain that FIFO workers placed on communities.
“The coal mines in the Upper Hunter and northwest regions are fortunate to be able to draw upon a workforce from a reasonably close proximity: about 70 or 80 per cent of the workers on these mines are drawn from the surrounding local government areas,” he said.
“So, while we have drive in, drive out issues, we don’t have the challenges of FIFO workforces in the same way that Queensland and, to a much larger extent, WA has.
“A lot of our regional communities close to our mining operations are experiencing population growth and that’s placing an increasing pressure on the local infrastructure and local community services.
“It’s a different set of challenges to managing a transient workforce in the FIFO situation.”
However, NSWMC reported that employment in NSW was likely to take a massive hit as the impact of the Carbon Tax became apparent. It added that, according to NSW Treasury estimates, 18,500 jobs in the Hunter region would be lost by 2020.
Government regulations According to the NSWMC, the Carbon Tax, which charges $23 per tonne of carbon emitted from some of the country’s largest polluters, would cost the mining industry $25 billion up until 2020, of which a massive $18 billion would come from NSW coal miners alone.
Mr Galilee said that the Minerals Resource Rent Tax (MRRT), which levied 30 per cent of super profits from the mining of iron ore and coal throughout Australia, plus supplementary mining royalties, would also pose particular challenges for NSW miners.
“The State Government has taken a deliberate decision to impose a supplementary mining royalty on coal to recoup the additional costs of the Carbon Tax,” he said.
“So there is an issue that our coal producers have had to deal with in relation to cash flow to ensure the supplementary royalty arrangements introduced by the State Government don’t have a dollar impact on the operations.”
Not only will miners have to adjust to operating under the Carbon Tax and the MRRT, but the industry has also been hit with another $75 million of extra charges to fund exploration.
In the NSW state budget handed down last month, the Government introduced two new charges to the mining and petroleum industries that, combined, will raise more than $19.5 million a year. The resource sector will be required to contribute to a new $13 millionThe administration levy will be an annual charge equivalent to 1 per cent of the rehabilitation security deposit provided by mining leases.
A further $6.4 million will be used to fund the New Frontiers Program: an exploration initiative to stimulate mineral and petroleum investment in under-explored areas.
However, Mr Galilee said that given how much the mining sector paid in royalties every year – in 2010-2011 it paid nearly $1.4 billion and he expected this figure would rise to more than $2 billion annually – it should not have to fork out even more money.
“These sorts of programs should be funded from our royalty increments that we are delivering to the State Government rather than imposing additional charges and levies on top of those,” he said.
“We are obviously not happy and we’ve made that very clear to the State Government.
“It’s not necessarily a large number by itself but when you add it to the Carbon Tax and the mining tax [MRRT], and other new taxes and charges that the industry has had to face in recent years, there is accumulative impact which does make it more difficult for NSW to attract global mining investment.
“The industry is obviously happy to pay its fair share of tax but we would caution all levels of government against thinking that the mining industry in NSW, and nationally, is an endless source of revenue that they can call upon, because if they keep squeezing and squeezing this industry for more and more money, eventually they’re going to find that there’s nothing left.”
Mr Galilee also said that the NSWMC was disappointed more funding was not set aside for infrastructure projects throughout the state.
“The Federal Government has only provided $2 million in the past three years of its regional infrastructure fund to NSW,” he said.
“That compares to commitments to provide $2 billion to WA and $2 billion to Queensland.
“We argue that NSW is missing out there and, given that we are providing a significant amount of revenue through our coal exports, we should be seeing more of that money from the Commonwealth.”
Mr Galilee said that the coal industry in particular would feel the burden of the new taxes and charges as it also struggled to adapt to stricter State Government rules for coal and CSG exploration and mining.
The new regulations will see a ban on the use of toxic chemicals and evaporation ponds, greater public consultation and stronger environmental requirements.
NSW Resources and Energy minister Chris Hartcher said that in order to achieve a balance between agricultural activities and mining, all new projects that had the potential to affect agricultural resources or industries were required to submit an Agricultural Impact Statement.
The new rules also included the Strategic Regional Land Use Policy process to ensure that key agricultural lands were respected.
Mr Galilee said, however, that this policy could potentially impact coal mining in the Upper Hunter region.
“The Upper Hunter region is of particular concern to us: it’s a strategic economic region for NSW and also for Australia in feeding coal exports to the largest coal export port in the world: Newcastle Port,” he said.
“We think this plan would have a negative impact on the ability of the industry to meet its coal export forecasts through the Newcastle Port and into the future.”
Yet Mr Galilee did acknowledge that there was increasing recognition from the State Government of the importance of the mining sector to the state economy: particularly the significance of coal as its largest export commodity.
He said there was still hope that, should the Carbon Tax be revoked, the supplementary royalty would no longer be charged.
“We have been encouraged by the very strong consultation that has occurred between the industry and NSW Treasury as part of the design of the new supplementary royalty,” he said.
“We are working through those issues with the State Government and also with our industry to try and deliver a satisfactory outcome for everybody, but it is creating a level of uncertainty and explorers, in particular, are feeling the pressure of that here in NSW.
“There is an ongoing engagement with Government taking place to try and speed up their review process to try and ensure that the final outcome is conducive of responsible development of mining in NSW.”
The future Mr Galilee said that the NSWMC was hopeful it could work through the short-term challenges with the Government in order to provide “a healthy long-term future for mining in NSW”.
“We have a very long history of contributing to the state’s economy and working with other landholders and other sectors for mutual benefit,” he said.
“We hope that we can continue the growth trajectory and the right Government policy settings will support that growth.
“The best way the Government could promote additional investment into the NSW mining sector is to deliver an effective, efficient, transparent and streamlined planning system as quickly as possible.
“That includes a state significant development process that facilitates quick assessment of new projects.” Mr Galilee said that while the State Government had forecast an increase in production and coal exports in NSW, this would ultimately be driven by global factors, exchange prices and the economic growth situation in those export economies.
“We do envisage a bright future in NSW,” he said. administrative levy to expand government enforcement and improve assessment, approval and communication capabilities.