By Rachel Dally-Watkins
21 May, 2015
THE resources industry is a mainstay of the Queensland economy, contributing $77.6 billion during 2013-2014 and accounting for one in five jobs in the state.
The Queensland Resources Council (QRC), which represents explorers, miners, contractors, mineral processors, oil and gas producers and electricity generators with interests in the state, estimated that the resources industry supported 17,000 businesses during 2013-2014 with direct spending of $37.5 billion. It also contributed $2.5 billion in royalties, and employed 442,000 full time employees (directly and indirectly).
“Queensland is the leading exporter of coking coal in the world; currently, both coking coal and thermal coal combined accounts for about 70 per cent of the value of resource production in Queensland,” QRC chief executive Michael Roche said.
“That will start to change as the LNG industry kicks into gear – we’ve already started LNG exports from one LNG projects, and two other projects will start exporting their gas around June or July.
“With LNG coming online, and of course depending on where the oil price settles, the sector is set to add another $10 billion to $12 billion per year to the state. It will be an important change in the industry.”
In addition to coal, Queensland is recognised for its world-class endowment of base metals – it is the world’s second largest producer of lead (10.4 per cent of global production), the third largest zinc producer (6.9 per cent), and the fifth largest silver producer (7.6 per cent), as well as accounting for 1.3 per cent of global copper production.
On top of this, Queensland is Australia’s second largest bauxite producer and third largest gold producer.
The current market
While Australia’s economy grew by 0.5 per cent in the December 2014 quarter and 2.5 per cent for the full year, the Queensland economy fell by 1 per cent in the final quarter and by 2.5 per cent for the full year, according to the Australian Bureau of Statistics, as the state’s resources sector largely moved from construction to operations.
Mr Roche said these figures were not unexpected and that, despite an overall slump in commodity prices throughout much of late 2014 and early 2015, the future prospects for Australia remained positive with economic growth in highly populated emerging economies to sustain increased demand for energy commodities.
Pointing to an ABS report released in March, Mr Roche said Australia was expected to “regain its position as the world’s largest coal exporter on the back of strong growth in demand from Asia”, with fossil fuels still expected to make up about 75 per cent of global energy supply by 2040.
“There’s been a significant downturn in prices for coal and more recently for gas – it hasn’t been as dramatic a fall off as in prices for metals and minerals, but there are still many coal operations operating at a loss at current prices,” he said.
“There’s been some assistance with the fall in the value of the Australian dollar but, on our estimate, about 40 per cent of all thermal coal tonnes are being produced at a cash loss at current prices.
“At the moment it’s less of an issue for coking coal, which tends to attract a higher price; there are probably some coking coal operations that are operating at a loss as well, but they’re in the minority.
“The global macro-economy is a challenge for everyone. Generally resources markets are oversupplied, not in all commodities, but certainly that’s the case in coal – it was a case of good prices a few years ago attracting more supply, and probably a number of us over-estimated the strength of Chinese demand, so that’s been a factor as well.
“That’s not to say there’s a lack of demand for our resources, but many of the markets are typified by over-supply and it’s going to take a bit more time for supply and demand to come back into balance globally.
“We are seeing evidence, both in Australia and places like North America and Indonesia and even in China, of coal mines being put on care and maintenance, so as that supply gets withdrawn from the market that will speed up the process of bringing supply and demand back into balance.”
Mr Roche said the cost-cutting measures implemented across the industry had been “painful”, estimating that about 9000 jobs had been cut across the coal industry alone.
“However the industry is producing record tonnage, which shows a dramatic improvement in productivity and dramatic improvements in costs that have managed to see many of the operations stay open and if not thrive, then at least survive and remain in business for the better times that we expect will follow.”
The new Labor Government
As the resources industry faces the challenges of the current market, government policy will play an increasing role in the industry’s ability to thrive.
With a new minority Labor Government taking the helm at the start of the year, there has been a lot of speculation about what the change in power will mean for the state.
“The QRC and the Queensland resources sector have a proud record of working with consecutive state governments in the interests of delivering long-term prosperity to all Queenslanders,” Mr Roche said at the time.
“We are confident that a globally competitive resources sector will continue to enjoy bipartisan political support as an essential contributor to Queensland’s economy, jobs growth and revenues to fund state government services.
“The ALP’s ‘iron-clad’ campaign commitment not to increase royalties for coal, minerals, petroleum or gas is a welcome step towards that objective, noting that the best way to boost government royalty revenues is the implementation of policies that support resources sector growth.”
Mr Roche said there was not a lot that governments could or should be doing to help struggling mining companies during the current climate – unlike in other industries such as manufacturing where government assistance was commonplace.
“What we do ask of governments, in good times and in bad times, is to be restrained in terms of taxes and charges and be as efficient as possible in their approvals processes,” he said.
“We have secured a commitment from the new Queensland Government that they won’t increase royalties in their first term of government, so we look forward to them delivering on that commitment.”
The Labor Party’s long-held policy in Queensland has been anti uranium mining. Mr Roche said it was disappointing but unsurprising that the new government was looking to reinstate a uranium ban, which was lifted by the Newman Government in August 2014.
“We’ve had the situation of no uranium mining under a long term Labor government, followed by a brief period under the LNP where uranium mining was going to be allowed, and now we’re in discussions with the new government which seems intent on reinstating the ban on uranium mining,” Mr Roche said.
“This isn’t a problem in the near-term, in terms of getting in the way of projects, because the uranium price is well short of where it would need to be to underpin a new uranium mine. However it’s the signal of on again, off again policymaking that makes it hard to convince investors to stay the course.”
According to Mr Roche, most of the state’s uranium deposits are in the northwest of the state, which is the major base metals province – however many of the major base metal projects in the area are coming to the end of their mine lives, and there is “no certainty about reinvestment to extend the lives of those projects”.
As such, opening up the option of uranium mining in the northwest would add “another string to the bow” and offer diversification in a region of the state so dependent on mining.
“Uranium is never going to be another coal industry or another gas industry in terms of size and economics, but the value of the known reserves of uranium in the ground is worth probably about $6 billion,” Mr Roche said.
“That would make a modest contribution to the Queensland economy as a whole – but when you start talking about hundreds of construction jobs and hundreds of new operational roles in uranium mines, that’s [a] significant number for remote parts of Queensland such as in the northwest.”
Progressing Abbot Point
The Abbot Point port expansion moved a step closer to approval in April with the referral for a revised dredging project delivered to the Federal Government.
The QRC called this “another milestone in opening up one of the state’s great energy provinces, the Galilee Basin” and progress for Adani Mining’s Carmichael coal mine, North Galilee Basin rail and Abbott Point port projects.
The port, about 25km north of Bowen at the northern end of the Galilee and Bowen basins, has been operating for about 30 years.
“It is geographically the best available option for exporting from the new Galilee coal basin – there’s no opening up of the new basin unless there’s a port solution,” Mr Roche said.
Under the new plan, dredge spoil will be dumped on unallocated land at the port instead of at sea or on the nearby Caley Valley Wetlands.
“We’ve reached a good place with the new Queensland Government and reached an agreement around the development of the port, particularly around the dredging and the disposal of the dredged materials,” he said.
“The new proposal has been referred down to the Federal Environment minister Greg Hunt and we have every expectation that over the next couple of months there will be a positive outcome from the Federal Government.
“That will then clear the way for the dredging program and clear the way for the development of the port – and being able to point to a clear port solution is very important for project proponents with assets in the Galilee Basin, as they raise very large amounts of capital to build their mines and new rail lines, and development of the port.
“And then you’re talking about many thousands of jobs created in construction and in operations. Take the Adani Mining Carmichael project – they’re looking at a mining complex capable of producing about 40 million tonnes of coal, and that would be twice as big as our biggest coal mine in Queensland at the moment, so there will be a lot of spin-off benefits to a whole range of regional communities inland Queensland and on the coast, both in the construction phase and then operation phase.”