Look to the long term for growth, Williams

Dr Nikki Williams' Keynote address at the Prospect Awards presentation evening on Wednesday 22 October, 2008, at the Dockside Convention Centre, Darling Harbour, Sydney.

Thanks Daniel. Distinguished guests and hopeful winners. Bill Gates, co-founder of Microsoft, told an audience in New York recently that “People are not motivated by blame, [but] by success.”

Tonight, ladies and gentlemen, we have many successes to celebrate. But, of course, success is often preceded by failure.

It is failure, as JK Rowling recently observed at Harvard University, which forces us to strip away the inessential.

And it is imagination, so uniquely human, which drives the transformatory, revelatory and inventive. In reading some of the details of the finalists here tonight, I was struck by the depth of fantastic stories of achievement from companies – large and small – right across the country.

Despite the cutting edge technology we use, the fact that we create 70% of the world’s mining software on our shores, despite our multiple innovations and commitment to excellence, we are a very self-effacing industry, not known to trumpet our successes.

We rarely share our stories outside the industry and the families that comprise it.

Well, in NSW, we are trying to change all that — in some quite unexpected ways. A collaboration between mining and the arts played out at the Dungog Film Festival earlier this year — with NSW Mining as the principal presenting sponsor.

We came to realise how much in common our two industries share: mining, after all, is like secret science, while film making is akin to secret art.

Both industries work behind the scenes, in conditions which are often physically and emotionally demanding, with great intensity and creativity, using advanced technologies and close knit teams to create end products that most take for granted as just part of their modern way of life.

So, perhaps we can think of tonight as the Aussie equivalent of the Academy Awards for miners: complete with stars, directors and lots of producers!

On a more serious note. As citizens, we live in a world at the cross roads: momentous social, environmental and economic change is upon us; and what plays out in one corner of the world reverberates to the furtherest reaches of the globe.

Australia’s Prime Minister commented in his speech to the UN General Assembly in New York last month, that the global interdependence of nations has never been greater nor more necessary.

He urged international leaders to end the “greed is good” era and embrace global financial regulation and sustainable development principles.

In the 21st century, developed nations must share responsibility for delivering greater equity so that poverty does not breed instability, disease and devastation of common resources and the environment.

For more than 10 years I have been on the record saying that the financial products sector — with its derivatives, junk bonds, strategies to short the market and destroy shareholder value, not to mention the exorbitant commissions earned trading bad debt (euphemistically called credit default swaps) – was pariah like: premised on increasing the velocity of wealth rather than generating real wealth.

There is nothing imaginary, conceptual or intangible about the wealth built by mining.

Each one of us is part of an honest and indispensable world of real products and real services that keep this economy, and many others, afloat. But how will the snowballing world financial crisis play out in relation to the key elements of Australia’s global and domestic agenda? Will the European Union and North America balk at the cost of introducing a global emissions trading regime? How would this impact on the findings of the Garnaut Review that if Australia goes it alone with big cuts to greenhouse gas emissions (outside agreed international targets), it could be economically disastrous and environmentally useless?

The MD of Woodside — Don Voelte — recently declared that given the financial meltdown, Australia’s ETS is now “Dead on Arrival”.

Whether the Government persists with its current timetable for the introduction of the single most important transformation of the Australian economy ever, is uncertain. But the answers to these questions are crucial to the future of trade exposed, emissions intensive Australian industries like mining and minerals processing and vital, to the 1.1 million Australians who work in energy intensive business.

Many agencies and commentators are watching closely to see if continuing economic uncertainty will slow the response to globally destabilising threats like climate change, poverty, peak oil, chronic food shortages and religious fundamentalism.

In contrast to the doom, gloom and “end of the world as we know it” prophecies, there are some who see the economic turmoil as an opportunity. Amongst these are Sir Nicholas Stern, the UK Government’s influential climate advisor.

He says that there are actually more incentives to invest in energy efficiency during a recession and high oil prices and that spending on low carbon industries could help stimulate the economy. In the mining industry, we understand Nick Stern’s point, that from challenges come innovations; that necessity can be the mother of invention.

But, here in Australia, despite recent efforts by the Government and the Reserve Bank to take actions to shield our economy from the worst effects, our booming resources sector will not be immune.

The irrationality of markets, with their herd mentality, where people buy when the price is going up and sell when the price is going down, have already wreaked havoc with the share prices of Australian miners. Explosive price volatility and the exorbitant cost and scarcity of capital means that our mineral project development pipeline may well grind to a painful, if temporary halt.

Major customers and major producers are already sending up the smoke signals to this effect.

Even the relief that the lower Australian dollar provides in helping mineral exporters offset lower commodity prices, pales into insignificance when compared to the increase in the costs of imported plant and equipment. Indeed, the global resources boom has led to inflationary pressures on all inputs, including electricity, with costs rising by 34.7%

for underground mines since 2004 and by a staggering 60.7% for opencuts over the same period.

The immediate future looks to be one in which only the most agile and innovative will survive.

Having said that, every forecaster worth their salt (from IBISWorld, to ABARE, to AME amongst others) say that longer term, the Australian resources sector will continue to grow despite the slowing pace of world economic growth. According to the head of the World Bank, Robert Zoellick, the global flow of trade has more than doubled since 1990.

It is through this growth, that nearly 300 million people have escaped extreme poverty. We also know that electrification is inextricably linked to the alleviation of poverty.

The International Energy Agency predicts that global net energy consumption will more than double by 2030, leading to a growth in C02 emissions of 55% over the same period.

The IEA estimates that over the next 10 years, developing countries will need as much as $170 billion a year of investment in the power sector just to keep up with electricity needs, with an extra $30 billion per year to transition to a low carbon energy mix. And still, 2 billion people on the planet lack access even to a humble electric light bulb.

So whilst only a fool would underestimate the severity of our global financial crisis, once a semblance of economic stability emerges, the demand outlook for our mineral resources remains robust. The compound annual growth rate in coal demand from key countries in the Asian region over the next 5 years is forecast by AME at 4.4%.

This conceals the real drivers of increased demand: India at 11.4% p/a and China at 8.2% p/a. So, whilst Japan will remain Australia’s largest customer for thermal and metallurgical coals in absolute terms, its share of total imports will decline over the period.

Over the past 10 years, the Australian mining industry has undergone an historic transformation, with companies broadening their traditional financial measures of performance, to embrace environmental and social outcomes as equal measures of their success.

But, notwithstanding our triple bottom line approach, with the enormous threat posed by climate change and growing anti-mining activism by campaigning organisations (and I’m not talking here about the legitimate concerns of local communities), our social licence to operate has never been more under challenge. Our future is dependent on how we behave now.

So, whilst we have travelled a very long way in our environmental and land management expertise, our response to climate change, our accountability and engagement with communities, our continued and active commitment to the health and safety of our workforce and development of advanced technology, it’s likely that our industry will need to transform again in the course of the next decade.

If the Prime Minister’s predictions are right, we may witness the steady evolution of an internationally regulated economy, where resources are directed with an eye to equity, based in part on political, economic and social outcomes designed to deliver greater global stability and security.

That’s a world that none of us would recognise today.

The next generation of miners will grapple with the challenges posed by working in an industry of finite resources counterposed against seemingly endless demand.

The need to work with government and the broader society will be even greater, as decisions about the use and cost of diminishing natural resources will also be driven by the need to provide for our national security and protecting our fragile environment.

Of course, the Australian mining industry not only has a proven ability to adjust to changing times and priorities, we have a demonstrated track record of leading change.

Nowhere is this better illustrated than in reference to climate change.

The Coal21 Fund is a world-first, voluntary industry fund totalling $1 billion dedicated to fast tracking the demonstration of commercial scale low emission coal technologies. This collaboration between the industry, state and federal governments and the scientific research community has led to an impressive range of initiatives.

Indeed 13 of the 40 such projects going on around the world are happening here in Australia — a country which emits just 1.5% of the world’s greenhouse gases. Important projects have already launched, including the Otway Basin carbon storage trial and HRL’s IDGCC project in Victoria and the Callide Oxyfuel project in Queensland. In NSW, CSIRO is leading an exciting post combustion capture trial at Munmorah Power Station.

This is not only the first in Australia, it has huge potential for retrofitting to existing power stations. Significantly, the same CSIRO PCC team, based at Newcastle, is now working with China’s largest power producer, the Huaneng Group, on a joint pilot to recover 85% of the C02 from power station flue gases.

Given that 500 of the 800 coal fired power stations being built around the world over the next decade will be built in China, a breakthrough for the Chinese-Australian team could have profound ramifications for the world’s ability to meet the 60% reduction in C02 emissions by 2050 that the UN’s Intergovernmental Panel on Climate Change says is necessary.

Following on from this China focus, our Prime Minister has earned a lot of Frequent Flyer points since he took over the top job and, last April, I was privileged to join his entourage in China for talks with the business community. It was very clear from the discussion with President Hu Jintao, that the Chinese take the issue of climate change very seriously.

Whilst President Hu chided western nations for demanding that China cut its emissions, saying that the West should clean up the mess it has made over the past 150 years, in reality the Chinese are moving in many significant ways to slow their emissions growth: including important commitments to work more closely with Australia on this issue.

Given our own Prime Minister’s command of Mandarin (it was, frankly, very weird to listen to our Head of State in translation rather than in English) and the growing trade relationship between our nations, there is much to be optimistic about on this front.

You also may have heard that the Federal Government has just announced funding for a new Australian based Global Institute to drive the commercialisation of carbon capture and storage technologies.

While these technologies represent part of a whole suite of solutions which need to be implemented, it is an important recognition of the need for Australia to keep pace with growing international confidence and investment in these technologies.

All leading climate advocates like Al Gore, Nick Stern, the IEA and the IPCC recognise and support the critical role that CCS will play in combating climate change. In addition to the technology, Australia’s own national policy blueprint for reducing emissions is currently under discussion through the Government’s Green Paper on the Carbon Pollution Reduction Scheme.

As we prepare to embark on our first ETS, it is timely to remind ourselves that we need to be very, very careful. At this stage we still have to assume that we will have an ETS by July 1, 2010.

So I would like you to reflect for a moment on the European ETS introduced in 2005. The EU has long claimed the moral high ground for being the first cab off the rank with an ETS – but consider this: In its first year of operation, European industries emitted 66 million tonnes of C02 less than they were allocated — so the carbon cap was a complete fiction.

Industries were entitled to trade their permits (provided free, gratis and for nothing) in the market place, making the carbon cap a licence to print money. And print it they did. The 4 largest German power companies made somewhere between $14.4 billion and $19.2 billion windfall profit in the first year alone of carbon trading.

Compared with our own ETS, the EU was very circumspect. They limited the number of industries involved, they only included 40 per cent of emissions, and they only included one gas. Even when Phase 3 starts in 2013 they will only include five greenhouse gases, with the highly significant methane, still being excluded from the scheme.

Australia, by contrast, plans to go in all guns blazing from day one: covering 70 per cent of emissions, all six greenhouse gases and all permits will be auctioned: no freebies for Australian business and no exemptions or serious transitional measures despite the fact that not one of our competitors has anything remotely resembling at ETS.

The ETS and its eventual design is crucial to the future of the Australian economy and necessarily the competitiveness of our industry. It is, however, by no means the only major problem we face. Another significant issue is infrastructure.

Much has been made in recent weeks of the Federal Government’s Infrastructure Fund — at $76 billion in the first year it’s a worthy and very large investment in nation building.

It is also fortuitous that given the economic downturn that is already staring at us in the face, the Government will be able to use these funds to stimulate growth and shore up investment in major projects.

The mining industry welcomed comments from the Prime Minister earlier this month that Infrastructure policy reform is a national priority because constraints have held back the economy.

The industry has long argued that policy reforms to enable the market to work more efficiently and effectively, a single national export regulator and consistency around energy, water and planning laws are vital. But there are plenty of other pressing reasons why infrastructure investment is needed, particularly in areas supporting the mining industry.

Australia’s population is expected to grow to 25 million by 2020, while our economy will expand to $1.4 trillion.

The newly created Government agency – Infrastructure Australi -, which will manage the Fund, says the need to lower carbon emissions alone is going to require an additional investment of over $120 billion across freight, transport and energy infrastructure — including carbon capture and storage.

While the port bottlenecks for our industry are well documented, it is not necessarily funding but leadership that is required to work through the issues that hold back our export capacity and economic growth.

What is distressing is to think that the annual demurrage bill ($300 m in NSW alone) paid by exporters over the last couple of years, could have built several dedicated rail lines.

The coal sector has benefitted from the phenomenal prices that have been achieved over the last couple of years but we have not increased our global market share. Contrast this to the iron ore supply chain on the west coast which has seen Australia demolish its competitors.

Now that supply chain happens to be privately owned, but I don’t think ownership per se is the critical issue. What is critical is the commitment to, and orientation of, the entire supply chain towards one overarching objective: the maximisation of our exports. At the moment, the east coast export chain involves multiple parties each with differing objectives.

We cannot afford such inefficiencies. Too few Australians realise how much of our economic prosperity and high living standards depend on a strong minerals industry, through both exports and abundant low cost energy resources.

We are at strange point in history where our industry is responsible for the resources needed to produce all the modern items we take for granted — cars, PC’s, TV’s, lights, air-con and so on and yet the populations of developed nations are largely disconnected from the process of their creation. Our industry has only just started to work on this challenge but it does require greater attention.

We must find new and creative ways to help people make the connection between what we do and what they can’t or would not choose to live without. Ladies and Gentlemen, we certainly live in serious and interesting times.

That’s pretty clear when last Sunday’s TV ratings saw Kevin Rudd’s appearance on Minding your Money: An audience with the Prime Minister out rank the ARIAs, Kath and Kim and Australian Idol! But darn it we’re here to celebrate.

Australian Mining magazine is 100 years old and this year’s winners of the mining “Oscars” are about to take to the stage! I wish all of you a wonderful night. Best of luck to all the finalists. Now, let the real show begin!

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