Michael Mills spoke with the South Australian Chamber of Mines and Energy (SACOME) chief executive Jason Kuchel about the challenges facing the state’s mining industry.
Mills: Do you think the South Australian mining industry is in a healthy state at the moment?
Kuchel: The industry is in very good health at the moment and we are seeing some very strong growth throughout the industry.
However, I think deficiencies in the state’s infrastructure could actually prevent this growth from exploding into a full-on boom.
Mills: What infrastructure is desperately needed at the moment?
Kuchel: The number one priority in South Australia is the construction of a bulk commodities port.
In fact, I think we will eventually need several ports, because the state’s rail infrastructure is broken up into separate narrow and standard gauge railways.
All the railways south of Whyalla are narrow gauge, while those to the north are standard gauge.
So essentially, the state will require at least two bulk commodities ports to ensure both rail networks have harbour access.
The industry is also dealing with deficient water and power infrastructure.
Mills: What impact will Port Bonython have on alleviating this strain?
Kuchel: If completed, Port Bonython would probably meet around half of the iron ore industry’s needs.
However, the port is not certain to go ahead at this stage, so the State Government needs to make sure it gets built.
Mills: Which issues other than infrastructure are hampering the industry at the moment?
Kuchel: Securing finance has been a big issue over the last two years and is still continuing to cause problems, albeit to a lesser extent.
In particular, there have been problems associated with the Woomera Prohibited Area (WPA), which is a Department of Defence weapons testing range about the size of England.
The Federal Government has recently made several decisions to block Chinese investment in projects that lie within the WPA on the grounds of national security and safety.
We are still seeking a range of clarifications from the Department of Defence and the Federal Government to provide some certainty of what the rules are for explorers and miners in that area.
Mills: When do think the Federal Government will provide some answers?
Kuchel: We hope we will get a positive response before the end of the current financial year.
Essentially, the industry is seeking the ability to demonstrate that it can meet all of Defence’s requirements, whatever they are.
As an example, the industry already has to prove its projects meet Government environmental requirements.
If any proposal is unsatisfactory, it can be amended until all parties are happy.
The industry only wants the Department of Defence to afford it the same opportunity.
Mills: Which commodities have been the best-performed recently?
Kuchel: I am expecting uranium, copper, gold and iron ore to perform strongly in the future.
Of course, there are some other minerals that will also have good results.
For instance, Iluka’s Jacinth-Ambrosia mineral sands project has quite a substantial proportion of the world’s known zircon resources.
However, it is through those main commodities that we will see the most growth.
Mills: What challenges are you expecting in the medium and long-term?
Kuchel: I think infrastructure is going to continue to be an issue, because most of our minerals are found in the State’s north and west, which are areas with very little infrastructure.
For instance, we cannot always simply add additional power infrastructure where it is needed, because it often requires upgrades to the whole grid.
There are similar problems with water.
We think that changes to the Australian energy market and favourable concessions to renewable energy sources could provide the necessary incentives to upgrade the grid.
Mills: Do you think the recently re-elected State Government and Federal Government are aware of these challenges?
Kuchel: I think they are aware of them.
The South Australian Government is still getting its head around how to deal with that in the current economic climate.
Prior to the global financial crisis, private infrastructure providers were prepared to take risks they are simply not prepared to take today.
The Government needs to work out how it can be a catalyst to ensure that some of the infrastructure is developed, particularly projects that will be used by multiple companies.
Generally speaking, the larger companies can provide the infrastructure for themselves.
But some of the iron ore juniors, for instance, are simply not a position to develop all of their infrastructure requirements on their own, because their initial outputs would not justify it.
A collective of juniors could justify a development, but they are usually not ready to proceed at the same time, which increases the risk for private infrastructure providers.
So the Government needs to work out how it can participate in this.
One of the methods we favour is the underwriting of tonnages for a bulk commodities port.
But for general infrastructure, the Government could underwrite the user charges, meaning it would not have to fork out any money upfront and may not need to do so at all.
Having said that, the State Government has said it is keen to tap into the Infrastructure Australia Fund and other such Federal funds.
So in some cases there may be no need to guarantee the user charges.
Mills: Ultimately, what do you hope the Government will decide to do?
Kuchel: Well at the moment, I think the Government takes the position that the private sector needs to fund everything.
While we do not have any ideological objections to that, our industry is more than happy to pay for what it is using.
The reality is that our industry cannot always afford to pay for infrastructure upfront and often finds user charges an easier way to pay.
Mills: What else could the industry do to help solve these problems?
Kuchel: One of the ways we are working with the Government is through the Resource Infrastructure Council, which was established on SACOME’s recommendation more than 18 months ago.
Together, we are identifying the most urgent priorities and infrastructure opportunities.
Although these things do take some time, we hope this collaboration would clear the way for the industry to really take off in the coming years.
Mills: Which projects are going to have the biggest impact on the industry?
Kuchel: The expansion of the Olympic Dam mine will have the biggest impact on the state’s industry and not only in terms of the people and resources required to make it happen.
There is the potential that the infrastructure BHP Billiton plans to install could benefit other areas of the state.
For example, the company is planning on building a pipeline between a proposed desalination plant and the mine.
If the Government helps to make the pipe larger, some of the increased water capacity could be used for other purposes, such as supplying towns and other mining developments.
Mills: What are your overall expectations for the industry in the next couple of years?
Kuchel: We currently have 11 mines in operation and I expect that will rise to 16, either approved or in operation, by the end of this year.
I believe the state is still on track to see a total of 23 mines by 2015.