Australian mining sector still beating off competitors

Leading US mining consultancy Behre Dolbear has rated Australia the best place in the world for mining investment for the fourth year running.

Scoring highly on economic and political stability, Australia easily fought off its closest competitor Canada, with Chile, Brazil and Mexico rounding out the top five.

Australia was rated the best country in the world for cutting down permit delays, with Tanzania and Mexico coming in second and third.

The countries with the most delays were the United States and Papua New Guinea.

According to Behre Dolbear, Australia also had the least mining corruption in the world, beating Canada and the United States to take out top spot.

However, like last year, Australia's rising dollar was rated as a concern.

“While not enough to change its rating, Australia’s inflation is beginning to be a concern,” the report stated.

Behre Dolbear said the mining tax was also a concern in Australia and abroad, and officials in "almost every minerals-producing nation" had been considering raising mining taxes and fees.

"The inspiration for these efforts may have been bolstered by Australia’s actions over the past year to increase taxes both directly and indirectly on mining operations."

Overall Behre Dolbear found Australia to be significantly ahead of any other region in the world for mining investment, especially in its handling of economic, political, and social issues.

Australia’s rating fell 0.7 points to 56.3, but was still well ahead of Canada on 54.3. The Canadians closed the gap on Australia courtesy of an improvement in “social issues”, with the report stating that “in Canada, the issue surrounding indigenous people is becoming much less contentious”.

In comparison

According to the latest survey by the Fraser Institute, Aussie miners are more pessimistic about regulation than they used to be, and bosses are increasingly wary of public backlash to their operations.

The study, which hands out a 'policy potential indicator' (PPI) for every mining province in the world, works by asking managers and key industry figures how they rate government regulation of their projects.

Judging by the results this year the sector has some catching up to do.

Not one Australia state made the top 10 – a very different outcome to the Behre Dolbear report.

 “The average PPI score for Australia is down slightly from 2011/2012, although there has been an increasing trend over the last five years,” the study said.

“WA is the highest ranked Australian jurisdiction with a global rank of 15 and a PPI score of 79.3.”

“Victoria showed significant improvement in both its PPI and rank, moving from 44 in 2011-12 to 24 in 2012-13 due to improvements in political stability (38%) and the legal system (16%).”

While most of the bad news about the mining industry has centred on commodity prices, public backlash and government policy still weigh heavily on the minds of most miners.

The Fraser study showed a pessimistic outlook and most executives, under the protection of anonymity, didn't hold back their criticism.

One company president claimed “political and regulatory panic” was impacting the ability to move forward, and others blamed regulation for increasing exploration expenses and decision-making timeframes.

The Fraser study indicated 2013 would likely be a slower year for the exploration sector, with more companies taking a 'wait and see' approach to the volatile market.

Industry concerns

A spokesman for the Minerals Council of Australia said the country needs to work on some of its issues to remain competitive.

Speaking to Australian Mining about the Behre Dolbear survey, the spokesman said recent trends in the industry pointed to the need for reform.

“Analysts will always have differing views about Australia, but you only have to look at the recent and significant job cuts to see that Australia is not as good as it could be,” he said.

“It takes longer to develop projects in Australia, we have high taxes compared with other countries and there is ongoing speculation about further imposts on the sector despite the fact we are already a very high-cost economy.

“We are concerned that our international competitiveness is slipping as other countries catch up to us.”

Bob McCotter, environmental mining consultant and non-executive chairman of EMGA Mitchell McLennan (EMM), a planning and environment consultancy said the results were ‘surprising’.

He said the view of the industry was not so optimistic and that the consensus was there was too much government involvement, resulting in higher costs.

“I was somewhat surprised and heartened by the upbeat nature of it (the report) because I don’t think that would be the consensus view within the industry itself,” McCotter told Australian Mining.  

“The growing complexity and federal government intervention in the approvals process is seen as a significant impediment going forward”.

Speaking at the Kevin Mccann Lecture on Energy and Resources Law last year, MCA chief Mitchell Hooke called for policy changes which would ensure Australia stays competitive in what he called the ‘global village’, and pointed to the reforms made by emerging economies which put Australia at a disadvantage and at risk of losing market share.

“There is no salvation in dining out on our natural resources,” he said.

Hooke pointed to higher total cash costs, which he claimed are 30 per cent more than the global average as making Australia an unattractive place to do business for foreign investors.

He went on to say that Australia’s position as a premier global supplier is ‘deteriorating as emerging markets become more competitive”.

Pointing to places like India and South America, where costs are lower, Hooke said natural resource companies will have no choice but to access future resources elsewhere.

More recently, Gina Rinehart also warned that Australia needed to lifts its cost competitiveness.

"One of the things that I'm really concerned about is the cost competitiveness of our industry because our industry doesn't sell on the local market, it sells on the world market," she stated.

Rinehart says that making Australia an attractive investment destination was critical, adding it is an issue of which “too few Australians are realising the consequences".

Australian Mining asked Rinehart which policies she thought needed the most attention.

“There’s two in particular,” she answered.

“That is new and increasing taxes such as MRRT, such as carbon tax and then there’s also the cost of regulations.”

Rinehart explained that for a recent project in Queensland, over 5000 approval processes had to be submitted.

“Now for a big company, say a BHP or a Rio, they have floors of people working on these approvals, this where it is so difficult for small businesses, or even medium businesses, because small businesses have to go through exactly what the bigger ones have to go through and it is really hard for small businesses to go through the myriad of approvals,” she told Australian Mining.

The Minerals Council of Australia also recently released a new ad campaign “Keep Mining Strong”, calling on the government to halt increasing taxes on the industry.

The ad states that Australian mining companies pay over $20 billion in taxes and royalties a year and that if costs continue to increase, Australia will lose mining projects to other countries with ‘lower taxes’.

 The ad warns that if this happens: “Australian’s everywhere are the losers.”

Moving forward

As Australian Mining reported earlier this year, government intervention is a particular concern for Australian miners.

“Federal Government intervention is such a key issue here in Australia,” Grant Thornton national head of energy and resources, Simon Gray said.

There is no doubt that mining in Australia is becoming more expensive, with production costs being driven up by many factors.

Labour costs are through the roof, commodity prices have dropped and the high Australian dollar is adding to the burden, all issues which need attention.

But despite these issues, Australia is still on top and is not likely to be knocked off anytime soon.

Australia continues to be one of the most highly regarded mining provinces in the world, remaining years ahead of some of the corrupt, war torn, and unstable regions of Asia, Africa, and other parts of the world.

Many have said that if Australia does not become more competitive, mining operations will head elsewhere like South Africa, India, and even Russia.

But with political stability, taxes, corruption and social issues rating the worst in such countries, the sovereign risk is still a major concern for many mining companies.

While there has been an increased investment in countries like Chile and Mexico, it is pretty clear that at this stage of the resource race, countries that have lower political and social risks will win over lower cost countries.

“The competition for mineral resources will make those countries perceived to have the lowest political risk, all other things equal, able to attract a significant portion of the global mineral investment as well as receive a premium for their resources over countries where perceived instability exists,” the Behre Dolbear report stated.