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reasons for cost increases during production
and development including:
•
Reduction in grades of ore in major
commodities leading to costly extraction
through aspects such as increasing
impurities and increasing waste to ore
strip ratios.
•
Greater distances to infrastructure.
•
Higher imposed costs such as taxes,
royalties and regulatory costs.
•
Labour shortages and constraints.
•
Higher gas, diesel, transport, logistics
and materials costs.
•
Delays and failures associated with
long, complex approvals processes and
costs of environmental compliance.
•
Complexity in the above processes
leading to additional costs in
specific expertise, business systems and
labour processes.
While some of these reasons are difficult
to address, others can be overcome with
leadership, political will and a collaborative
approach to problem solving. There is an
opportunity for industry and governments
to partner again to make Australia one of
the most competitive mining nations in the
international marketplace.
While the focus has been on costs, it
is important to reflect on what is actually
occurring across the broader resources
sector. The notion that we are facing an
“
end of the mining boom” has been
published dozens of times over the past
year. The reality, as you might expect, is a
little more complicated.
CME’s
State Growth Outlook
,
published
in late 2012, predicted that the Western
Australian resources sector’s historically
high investment and construction phase
was close to reaching its peak. Our forecasts
showed that the sector is in transition – not
from boom to bust, but from construction
phase to production phase. We are moving
into operations when returns start flowing
to shareholders and royalties and taxes
contribute to government revenues.
No one wants to renovate their house
for five years – they want to move in and
enjoy the space they created. The same goes
for resource projects. Thousands of jobs are
created during construction but it is in the
production phase that the full economic
benefits are felt by governments and the
wider community.
The
State Growth Outlook
highlighted
starkly that Western Australia needs to
establish a future pipeline of projects.
The resources sector knows that the
next phase of development begins with
increasing exploration activity here in
WA. Unfortunately we are not the only
country blessed with natural resources
and we are facing some pretty stiff
international competition.
WA companies have regularly been
willing to take the risks associated with an
exploration or drilling program. However,
the increasing cost of doing business faced
by the resources sector in WA has put the
brakes on future development. We have
seen three consecutive quarters where
mineral exploration has declined. Compared
to the corresponding quarter a year ago,
mineral exploration is now 14% lower.
Western Australia needs to be an
attractive destination to explore for
commodities
and
develop
resource
projects to deliver ongoing prosperity
to the community. CME welcomes the
commitment by the Abbott government
to introduce an Exploration Development
Incentive. This incentive will strengthen
the pipeline to ensure future mining activity
continues to underpin the growth of the
Australian economy, allowing investors to
deduct a proportion of mining exploration
expenditure against their taxable income.
CME looks forward to working
collaboratively with the Abbott government
to ensure the Western Australian resources
sector continues to grow strongly
and contribute to the growth of the
national economy.