The NSW Minerals Council Industry Conference was held in Sydney yesterday and featured frank discussions about the state of the industry from mining executives and suppliers.
Mining Your Own Business – Benefits of Mining Beyond the Mining Sector focused on the economic and commercial benefits of mining that can be felt by the wider community, and how these can be shared by those not directly in the business of mining.
A new industry report by the NSW Minerals Council released at the event reveals mining spend in NSW is worth $18.8 billion to the economy.
Council CEO Stephen Galilee told Australian Mining that the benefits of mining in NSW were widespread.
“The benefits of mining activity in NSW are being felt not just in the mining regions and not just in the mining economies but are also being felt right across the NSW economy, particularly here in Sydney and Western Sydney where there is a supply chain of businesses large and small,” he said.
“That’s why it’s vital that governments at all levels get the policy balance right and support the responsible development of mining in NSW.”
However, the challenges facing the industry were not forgotten, with speakers saying policy reform was crucial if mining in Australia is to stay globally competitive.
Challenges facing the industry
Speaking at the conference, professor Henry Ergas from the University of Wollongong, highlighted the challenges facing the mining industry and said serious reform is needed to ensure Australia remains competitive on the global stage.
Pointing to high cash costs and regulatory burdens, Ergas argued that doing business in Australia will become less attractive if changes are not implemented, and warned that the industry risked losing market share to cheaper countries.
“Mining is a highly competitive industry in global terms, it’s an industry where there’s intense global competition.”
“If we continue to face rapid cost escalation then we could rapidly lose market share and even lose volume.”
“We’ve had the period where the world was happy to pay us much more for what we did but as prices start to come off and as the rest of the world find alternative sources, it is clear we have to do more.”
Pointing to policy reform around planning and the environment, industrial relations and tax reform, Ergas argued that if restrictive policies were not amended it would mean to ‘forego significant net benefits moving forward.’
Ergas slammed the MRRT for its long-term impact on the competitiveness of the industry arguing it had a negative influence on ‘decisions going forward’ saying it put in projects in jeopardy.
“The Minerals Resource Rent Tax was a bad idea in theory and poorly designed in practice.”
“It’s going to make investing in Australian coal and iron ore projects less attractive than investing in resources overseas.”
Ergas also said delays in environmental approvals and excess costs associated with the planning process means productivity is delayed, effecting Australia’s competitive position.
“There’s a great deal riding on the Commonwealth to come to the party and sort out its end of the environment approvals process,” he said.
Orica Mining Services business manager for South East Australia, Kirsten Molloy, agrees that the planning process needs to be fixed.
“The planning process is challenging, can be difficult at times and can take quite a long time – so it’s all the things that can add to the complexity and cost of doing business,” she told Australian Mining.
Galilee also highlighted the need for reform.
“In a policy sense here in NSW a big priority for us is the planning system review that is underway, it’s a review that the coalition government initiated quickly when they were elected but it is taking a long time to be completed,” he told Australian Mining.
Galilee does not expect the review to be finished until the middle of 2013.
Suppliers and Miners: a tricky relationship
A panel discussion which included senior management from Xstrata Coal, Rio Tinto, BHP Billiton, Whitehaven Coal and Peabody Energy, highlighted the relationship between mining companies and their suppliers in times of the downturn.
In a situation where thermal coal prices have shifted and the focus is now on costs and the best way to keep them down, the executives said frank and open discussions with suppliers had risen in the last twelve months.
“We’ve tried to take the relationships we have with our suppliers and bring them in and talk to them about where we sit currently and look for opportunities that a supplier might be able to bring to us,” Peabody Energy’s vice president of supply chain Paul Wagner said.
BHP Billiton’s senior commercial manager Nick Saunders agreed that miners and suppliers needed to understand each other’s position when downturns occurred.
“There are suppliers that are working to tighter margins and we generally will recognise those, but in saying that we also expect our suppliers as business partners to also share in the some of the pain we’re taking on as a mining company and perhaps trim back those margins – but it’s not something universal and we accept that,” he said.
Derrick Hansen, general manager of procurement operations at Rio Tinto agreed stating ‘open and transparent’ conversations with suppliers was important.
All the panel members said that when looking for a supplier the focus was on risk, capabilities and alignment to the business, and that while some outsourcing did occur, the miners would rather source products from Australia.
“We would consider outsourcing almost anything overseas but there’s a certain amount of risk involved in that and what we look at is not necessarily the upfront cost but the total cost and additional costs,” Wagner explained
“If we don’t have the local support and if we don’t have local knowledge, it’s not worth the time that you’ve eaten up to source it from somewhere else when you’ve got that local supplier.”
Saunders agreed saying most of BHP’s suppliers were local.
“It’s still a very positive message for the Australian suppliers,” he said.
“I think low-cost country sourcing has its place, but it probably has been overrated.”