Level 2, 679 Murray Street
West Perth WA 6005 Australia
PO Box 1124, West Perth WA 6872
T:
+61 (0)8 9485 1040
F:
+61 (0)8 9485 1050
www.traffordresources.com
ASX:
TRF
in over a decade in June 2013. An announcement by the American
Federal Reserve that it will begin tapering off quantitative easing
(
a powerful driver of gold prices in recent years) over 2013 has
also seen the precious metal’s value dip precariously.
Given that Australia accounted for 67% of China’s iron ore
imports in 2012, minor movements in the massive Chinese
market can affect a range of companies in Australia – especially
smaller companies who gear their exports more towards the
Chinese market. Australian companies invested heavily in mining
assets at the peak of the industry’s ‘boom’ and this has seen a
number of major (and not so major) mining companies having to
write-down the assets at a considerable loss in 2013. In order to
minimise losses and deal with a squeeze in funding, Australian
mining companies have had to put projects on hold, divest
assets and resize operations, which has put the industry under
further pressure.
These companies range from the world’s largest, BHP Billiton,
to middle and junior miners, such as Alacer Gold and OZ Minerals.
BHP announced back in May 2013 that no new major coal projects
are being considered after already closing two unprofitable mines
in 2012, in addition to targeting an 18% cut in capital spending
for 2014. In the first half of 2013, OZ Minerals reported a massive
60%
year-on-year jump in production costs. In order to offset
lower margins in the gold industry, OZ Minerals will now focus
more on copper.
Meanwhile, the industry’s newest heavyweight, Glencore
Xstrata, halted work on a 35 million metric tonne coal port in
Australia in May 2013.
However, the effects of these cutbacks are not necessarily
indicative of a longer term Chinese demand trend. The new
leadership’s economic policies have yet to take effect and the
development of the 13th Five-Year Plan (2016-20), which is due to
supersede the current five-year economic development plan, also
adds an element of uncertainty.
How will China respond?
While approved Chinese mining investment proposals into
Australia peaked in 2008-09 at 98.7%, the sector still made up
64.9%
of total approved proposals for the 2011-12 period according
to the Foreign Investment Review Board. Demonstrating how
important Chinese outward foreign direct investment (OFDI)
is to the Australian economy, the International Monetary Fund
calculated that a 1% slowdown in Chinese investment growth will
see a 0.2% decrease in Australian GDP growth.
While Chinese investment into Australia’s mining industry
has decreased relative to other industries, China remains one of
the most important external factors in Australia’s mining industry