WITHIN two weeks of the Reserve Bank of Australia (RBA) heralding the nation’s resources sector as the economy’s prop, BHP Billiton has done what many industry experts feared would happen with the advent of the carbon and minerals resource rent taxes, shelving more than US$80 billion-worth of expansion plans for its iron ore, coal and energy projects.
In a mid-May address to the ADC Future Summit, RBA deputy governor Philip Lowe said “the resources sector accounts for around 16 to 17 per cent of current GDP”.
“Mining-related activity is estimated to have expanded by around 12 per cent over the past year and a similar growth is expected over the next couple of years,” Mr Lowe added.
BHP’s five-year organic growth program had mostly centred on expansions at its major Australian iron ore and coal projects.
In a recent speech to the Australian Institute of Company Directors, BHP chairman Jacques Nasser said Australia had become an unappealing place to invest due to its existing and incoming taxation system,
a difficult industrial relations environment, higher operating costs and continuing global volatility in financial markets.
“The tailwind of high commodity prices has contributed to record growth in the [mining] sector and [Australia],” Mr Nasser said.
“Now we have a period where those tailwinds are moderating and we expect further easing over time.”
He said BHP had a large and diversified portfolio of commodities and projects around the globe and was therefore not tied to Australia.
“Given our range of options, if we can’t meet our criteria in any one project or geography, we will redirect our capital somewhere else or we simply won’t invest at all.”
Institute of Public Affairs North Australia project director John Shipp said BHP’s decision was not a surprise to industry and it was possible that other companies would follow the mining giant’s lead.
“When the chairman of the world’s largest mining company says that costs in Australia are too high and BHP Billiton will consider moving investment overseas, you have to take the problem seriously,” Mr Shipp said. “Other companies will be taking what BHP says very seriously,” Mr Shipp added.
He said that the loss of billions of dollars worth of investment would have an adverse effect on Australia’s economy.
“We are talking a lot of job losses and a lot of job losses that are secondary to the mining industry.
“We are talking about the possibility of a downturn in the only industry, at the moment, which seems to be doing well.”
According to Mr Shipp, Mr Nasser was not the first to give voice to the issues that could be strangling the nation’s resources sector.
“Gina Rinehart has been talking about the massive increases in costs in Australia and what that means when Australia is competing for investment with places like Mongolia, West Africa, Brazil and other resource-rich countries.
“You have the situation in Australia where you have all these resource projects in coal, iron ore and other minerals that are in construction phase at the moment. If there is a sharp decline in commodity prices
in the next five years, Australia will be in a recession,” he said.
“Unless those resource projects come online after the construction phase, they are going to be getting none of the revenue that is promised and a lot of these businesses will decline.”
Mr Shipp said if that happened, there would be ongoing flow-on effects including a hit to government revenues.
“People are worried about having a two-speed economy at the moment, but the bigger risk is having a no-speed economy where no sector of the Australian economy is growing, no sector of the Australian economy
is putting on new people to work [and] no sector is attracting foreign investment. “It’s like what Paul Keating said in the early 1980s: we could be at risk of turning into a banana republic.”
Also in mid-May, Skills advisor to the resources sector, Kinetic Group, released The Kinetic Group Heartbeat Report 2012, which backs the comments of Messrs Nasser and Shipp.
The report found that industry growth, combined with high worker turnover rates and a large non-resident and ageing workforce, were key factors hampering Australia’s resources sector from capitalising on the worldwide commodities boom.
Additionally, high staff turnover rates were a major contributor to Australia’s high operating costs.
“The turnover burden to industry is conservatively estimated at $140 million annually for direct costs of recruitment, induction and training, and the turnover rate for non-resident employees was more than
double that of other employees during the 12-month sample,” Kinetic chief executive officer Derek Hunter said.
Annual turnover rates, including those for contractors, were identified at 24.4 per cent, with 18.4 per cent of workers leaving within the first 12 months of employment.
Mr Shipp said that in order for government to provide a better environment for investment and prevent further losses, it would need to eradicate the carbon and mining taxes and overhaul the industrial relations system.
“Government has to start listening to these warnings or else, instead of a two-speed economy, Australia will be facing a no-speed economy,” Mr Shipp added.
By Lorna Seatter