By Samantha James
WHILE the recent rise and fall of the Pilbara economy has been well documented since the iron ore price peaked in 2011 and dropped to record lows in 2015, green shoots are emerging.
Covering 502,000 square kilometres in northern WA, the Pilbara is synonymous with prehistoric landscapes, red dirt and its vast mineral deposits – especially iron ore.
Before the area became pivotal to the state and national economy, the export of iron ore was banned due to its apparent scarcity.
It was not until 1960 that the embargo was lifted and mining began in earnest. Up until this point WA iron ore production was just 10mtpa – by 1970 this figure had reached 100mtpa, and continued to grow.
Since the first significant exports were achieved from the Pilbara region in the latter half of the 1960s, the WA iron ore export industry has earned more than $460 billion in export earnings.
Rio Tinto and BHP Billiton have operated mines in the Pilbara since the 1960s and collectively produce about 70 per cent of the region’s iron ore; however, it was during the mid-2000s, as Chinese demand for steel began to pick up amid its massive construction boom that the price of iron ore began to soar.
It had plummeted as low as US$28/t in February 2005, until February 2011 when it peaked at more than US$187/t.
Miners responded by ramping up production – expanding old operations and opening new mines; BHP’s WA iron ore production rose from 58 million tonnes in the 2000-2001 financial year, all the way up to 225mt in fiscal 2013-2014.
New miners began to appear in the Pilbara – Fortescue Metals Group most notably, from beginning construction on its first mine in 2006 to producing 104.4mt in fiscal 2013-2014.
Atlas Iron bought up land in 2008 and developed iron ore hubs at Wodgina, Abydos and Mt Webber, starting production in July 2010.
The impact of the iron ore boom on towns in the region was immense.
At the 2006 Census, the Shire of Roebourne – encompassing Karratha, Dampier, Roebourne, Port Samson and Wickham – recorded a population of 16,423 and a median weekly household income of $2010.
At the 2011 Census its population had jumped to 22,900 and its household income to $2839.
A similar scenario played out across the Pilbara; the Town of Port Hedland’s population jumped by more than 3000 and the Shire of East Pilbara, dominated by Newman, saw its population almost double.
However, in the past two years the story has been a different one.
While production remained steady, the major miners reported drops in profit due to the iron ore price fall which bottomed out in December 2015 at US$39/t.
A population of 65,000 now call the Pilbara home – this fell by about 2000 in the past year despite a pull by regional and state governments to encourage population growth.
Major miners feeling the pressure of low commodity prices have reacted by tightening their belts, suspending operations and cutting workforces.
In fiscal 2015 BHP slashed 16,924 employee and contractor jobs, or 14 per cent of its total workforce – of this, 550 jobs were cut from BHP’s extensive Pilbara mine and rail network, not including its Perth head office.
Fortescue dropped 100 workers each from its Cloudbreak and Christmas Creek mines in April 2015 and in December the Nullagine joint venture (75 per cent BC Iron, 25 per cent Fortescue) suspended production of direct shipping ore, affecting most of the 260 employees and contractors at the site.
In January 2016 Consolidated Minerals suspended its Woodie Woodie manganese mine due to low prices, sacking 330 employees and about 50 contractors.
In mid-March 2016 Rio cut more than 170 jobs from its Paraburdoo iron ore operation and flagged up to 500 more across its Pilbara operations and Perth head office – hacking away at its 11,000-strong Pilbara workforce.
The Pilbara Development Commission’s (PDC) 2015 December quarterly report saw housing sale prices in Port Hedland and Karratha at their lowest since 2006 in an indication of how far confidence in the region had fallen.
The PDC has implemented several initiatives to encourage not only mining investment in the region but housing, tourism and agriculture development – chiefly, the Pilbara Regional Investment Blueprint development plan.
Launched in late 2015, the blueprint would “redefine the region to one of a broad based economy and increased population which will be underpinned by continuous growth and sustainability”.
The Pilbara Regional Investment Blueprint is building on the success of the Pilbara Cities initiative – a program that injected $1.7 billion into the region in 2010 to facilitate infrastructure and land development.
The PDC is targeting a population of 200,000 by 2050 – and this means investing in resource infrastructure as well as diversifying the Pilbara’s focus to renewable sources of wealth.
Incoming WA Mines and Petroleum minister Sean L’Estrange – shuffled into Premier Colin Barnett’s cabinet in April 2016 as former minister Bill Marmion moved to state development – said WA’s economy was in transition.
“As West Australians we are adjusting to an economy which has come off the biggest resource sector construction boom, along with commodity price peaks that have never been seen before,” he said.
“This cooling of the state economy requires an ongoing analysis of the resources and small business sectors’ needs.
“We must build on our ability to assist the market to quickly identify and respond to emerging trends and opportunities.”
Regional Development minister Terry Redman said the Pilbara blueprint would focus on diversifying the region’s economic base by leveraging “world-class infrastructure of existing industries” to create new jobs and business opportunities.
“Identifying opportunities that capitalise on the Pilbara’s competitive advantages will place the region in a strong position to seize opportunities for long term, sustainable growth,” he said.
Implementation of nine regional investment blueprints will be supported by a $362 million investment through the WA Government’s Royalties for Regions program, which reinvests 25 per cent of mining and onshore petroleum royalties to promote and facilitate economic, business and social development in regional WA.
Despite the “cooling” of the economy, WA was voted the world’s number one mining investment destination in 2015 by the Fraser Institute, returning to the top position after spending 2014 at number four.
Mr L’Estrange said the WA government’s rolling red tape reduction program had sped up approvals processes, cutting millions of dollars in mining industry costs.
“We are supporting investor confidence, through transparent regulation, a stable and proven royalty system, and freely available world-class exploration data,” he said.
Mine rehabilitation funds had also been implemented, while WA’s exploration incentive scheme was maintained by government as it invested in the Minerals Research Institute of WA.
While the major Pilbara miners were making structural changes that reserved cash, production for early 2016 was on par with previous quarters.
BHP’s total iron ore production for the nine months ended March 2016 was broadly unchanged at 171 million tonnes.
BHP’s share of production for the 2016 financial year was expected to be about 229mt, 3 per cent below prior guidance but still an increase on fiscal 2015 production, which reflected a reduction in guidance at the company’s WA Iron Ore project (WAIO).
WAIO production for the nine months ended March 2016 increased by 2 per cent to a record 193mt and reflected the Jimblebar mining hub operating at full capacity and improved ore handling plant utilisation at Newman.
Rio reported a 13 per cent increase in iron ore production for the first quarter of 2016 compared with December 2015 to 84mt, although this was still a 4 per cent decrease on the fourth quarter of 2014.
Atlas Iron had a record quarter, shipping 3.9mt (wet) product, up 7 per cent on the December 2015 quarter.
It also announced a debt restructure plan to reduce its US$267 million debt to US$135 million and reduce its annual cash interest expense by more than 65 per cent.
Meanwhile mining at the Roy Hill mega project began in late 2015 with its maiden shipment exported in December.
The 55 million tonnes per annum mine is owned by Hancock Prospecting and a consortium of Asian investors including POSCO, Marubeni and China Steel.
Roy Hill’s mine life was estimated at 17 years with the potential to extend it a further 12 years beyond this.
New sources of growth
The Pilbara Cities initiative has been responsible for major upgrades to core infrastructure and utilities including water, wastewater and power as well as city centre redevelopments in South Hedland, Port Hedland, Karratha and Newman.
Community well-being investments including the Karratha Health Campus, the Paraburdoo Childcare Centre, Dampier Community Hub, St Luke’s College Performing Arts Centre and a redevelopment of the Youth Involvement Council head office in South Hedland have also reinvigorated public amenities and lifestyle options for residents.
PDC acting chief executive Terry Hill said the PDC had established strong working relationships with mining companies in the region to forge partnerships that would assist community development.
“The Pilbara Cities initiative, which relied on all levels of government and industry cooperation, demonstrated the success of working together towards a shared vision,” he said.
“The Pilbara Regional Investment Blueprint follows the same principle – a plan for the region, by the region.
“We have forged collaborative partnerships to deliver transformational projects for our communities.
“Without this contribution from industry the remarkable transformation of the region would not have been possible or as successful.”
Tourism is also a major economic contributor to the Pilbara, with more than 18,000 people visiting the region in 2013-2014.
The blueprint would aim to increase the underdeveloped sector – worth $450 million – along with agriculture production, which consists of livestock production and exports and was valued at $61 million in 2010.
Mr Hill said the sector, along with aquaculture, presented another diversification opportunity for the region that would take advantage of the natural environment and existing export infrastructure.
Mr Hill said the PDC was committed to assisting the Pilbara to meet unpredictable but inevitable oncoming challenges and opportunities.
“As a rule of thumb, 60 per cent of the jobs available in 10 years from now haven’t been invented yet,” he said.
“The Pilbara has some of the biggest international companies operating in the region, so in a competitive global market we need innovative, big-picture thinking that will keep the region at the forefront of industry and technological development.
“Without a crystal ball we cannot predict what will happen in the future.
“What we can do is make sure the Pilbara is in the best possible position to take advantage of new development and investment opportunities while building vibrant regional towns and cities that attract and retain residents.”