Australian opportunity at risk

In the midst of what was a lively week in the nation’s capital, the Minerals Council of Australia has hosted its National Minerals Week.

It was graced with the presence of mining and political royalty, including Rio Tinto CEO Sam Walsh, Anglo American CEO Mark Cutifani, former Queensland premier Peter Beattie, opposition leader Tony Abbott, resources minister Gary Gray, and shadow minister Ian Macfarlane just to drop a few names.

The now ousted Prime Minister Julia Gillard was also on the bill, scheduled to address about 450 mining industry delegates at a Parliamentary dinner.

But Gillard had her hands full, calling a ballot on the Labor party leadership, which she lost to Kevin Rudd 57 votes to 45.

So the ever loyal resources minister and former Woodside executive Gary Gray stepped in and used his address to farewell the prime minister, and wrongly announce the death of Nelson Mandela.

Between the rumblings of a spill and State of Origin playing out it was difficult for many in the crowd to remain focussed on the networking and lobbying opportunity the dinner was billed to be.

But Sam Walsh did attempt to align the crowd and return the focus to the mining business.

“I’m in business not politics, so I’ll leave others to comment on that,” Rio Tinto CEO Sam Walsh said.

“Talking about business I’d be surprised to learn that anyone in this room tonight is unaware how quickly the operating landscape has changed and how much belt tightening is taking place in our industry.”

Mining is currently experiencing first hand the cyclical nature of the commodity market and the challenges of cost, productivity and competitiveness.

“While prices for commodities may rise and fall, the demand for our commodities that we produce is certain to grow over time,” Walsh said.

He explained that while Chinese growth has slowed when compared to recent years, it is coming back off a larger base.

“In an economy the size of China’s, even if growth remains in the seven to eight per cent range for some time, that rate still requires faster growing inputs of resources,” Walsh said.

Recently at a China development forum Walsh was told over the next five years China will require $10 trillion of raw materials.

“The long term fundamentals for commodity demand remain sound,” he said.

Walsh warned that taking advantage of such opportunities will depend on how ready the Australian mining sector is and how competitive it becomes.

“New technology and innovation play a key role here, driving productivity improvements by developing and deploying cutting edge technologies will be a key part of the competitive agenda going forward,” he said.

“Let me not play down the challenges that we’re all facing, productivity constraints, demands on business, cost, these will impact the abilities of Australian companies in taking advantage of opportunities as they present,” Walsh said.

Walsh urged the industry to imagine what would happen to Australia without a strong mining sector saying “the only thing that’s worse for the country than a mining boom is no mining boom”.

Giving his final address to the Minerals Council, former chairman Peter Johnston said the mining sector has and will continue to deliver a significant amount to Australia.

Since the year 2000 mining has paid over $130 billion in taxes, or enough to fund the defence force for five years, Johnston explained.

But he warned the industry is at a cross roads, with over $150 billion worth of projects being shelved in the last 12 months it is imperative to become more productive and cost competitive.

“We are seeing companies take difficult decisions every day to reduce their costs structures,” he said.

Johnston said Australia has been identified as a high cost destination with declining productivity, and a deteriorating sovereign risk reputation.

“All of these issues need urgent attention,” he said.

Johnston warned higher taxes destroy value and investor confidence, while increasing red and green tape delays projects.

“These impediments are no longer sustainable if Australia is to remain a world class minerals producer,” he said.

Miners are finding themselves having to cope with a vastly different operating environment to what was apparent merely 12 months ago.

“2013 already counts as a year of far reaching change in the industry,” Johnston said.

“We have clearly entered a more demanding phase, commodity prices and profits are down and it’s having an impact right across the industry, companies are cutting costs.”

There is an increasing focus on capital discipline and returns to shareholders, which is an area Johnston suspects miners may have taken their eyes off the ball.

“We cannot simply take our eye off the big policy issues that will determine our competitiveness, growth, and national prosperity,” he said.

The Minerals Council highlighted policy that has the capacity to impact the sectors capacity to grow and create jobs including budgetary policy and tax, energy and climate change, land access and environmental approvals, and infrastructure policy.

“As Australia’s most export orientated, globalised industry, we simply cannot continue to bear the unproductive burden of a progressive shift of economic policy from the productive to the distributive side of the economy,” he said.

In other words, as former resources minister Martin Ferguson has previously told parliament you’ve got to build the economic pie before you can distribute it.

“Those charged with policy need to have a clear understanding of what’s at stake if they continue along the path of high cost, low productivity and more regulation,” Johnston said.

He warned that now isn’t the time for mining to retreat back into its shell, rather it is the time “to reinforce our claim as a pillar of Australia’s economy and as a partner for all Australians to grow and prosper”.

With this in mind, the MCA again reinforced its electoral policy wish list calling for a stable and competitive tax and royalty arrangements, a streamlined approvals process, workplace arrangements that reward for higher productivity, and a focus on lifting education capacity in minerals related areas.

Opposition Leader Tony Abbott, together with the shadow resources minister Ian Macfarlane both used their addresses to outline the Coalitions’ new and improved “one-stop-shop” approvals process policy which would remove duplication and combine local, state, and federal approvals.

As a policy it is attractive to the mining sector, purporting to allow projects to be approved in a more timely fashion, it does however raise a number of questions in terms of social licences to mine and taking the power away from the states and communities.

Macfarlane also said under a Coalition Government the mining tax would be repealed as a priority and the country could expect a return to the Howard years with less sudden change.