The first day in Adelaide today of the Paydirt 2009 South Australian Resources & Energy Investment Conference heard that the risk factors in the resources sector are now showing upside although it will be some years before explorers and miners enjoy the equities market conditions of recent years, according to Adelaide-based stockbroker, Taylor Collisson. Delegates also heard from the South Australian Premier, Mike Rann and SAMPEG’s ideas that federal budget help for the resources sector would get more “bang for buck” than other stimulus packages.

Taylor Collisson Director Michael Whiting said it was encouraging to see that any positive news from the resources industry now appears to be receiving an equally positive response from investors. “This is a very encouraging sign and if it was backed by any large exploration discovery, the industry would alight,” he said.

“It will be some time, however, before we get back to the buoyant conditions of recent times but the risk in the sector is now on the upside. Investors are now able to buy companies at valuations you could only dream about even 12 months ago. While we caution against any expectation of returns coming as quickly as previously, getting set now and being prepared to hold on to a resources investment will work as an investment strategy in the coming 12 months.”

Whiting said smaller explorers and miners in Australia’s resources sector should not expect any relief any time soon from difficulties in accessing project or expansion financing, “In the current market gyrations, it would be tempting to believe that the ‘authorities’ are getting on top of the problems that had created the ‘Global Financial Crisis (GFC),’ he said.

“There is a real danger of emotion being placed above logic. Hardly a day goes by without some pronouncement on high regarding the GFC – and the magnitude of these measures is almost beyond belief. Many of these measures are experiments and if we look at Japan in the 1980s, similar measures failed then.

“Against this, with the short-term interest rate in most countries now negligible, the willingness to take risk has shifted and this seems to be the main reason for the global market rally.”

As a result, Whiting said, resources industry investors obviously would favour those companies best positioned to go forward – backed by good projects and exposure to adequate funding. “However, I believe the funding for many of the smaller exploration companies will remain ‘tight’ despite the perceived market rally, as a plethora of companies are looking to raise capital. Overall, I do believe that we have seen the worst and that the fear factor that was around early this year, will not return.”

South Australian Minerals and Petroleum Expert Group (SAMPEG) Chairman, Dr Ian Gould, said it was wrong to believe the resources boom was over. “Nothing is further from the truth – the country’s resources sector is not in a bell curve scenario. Demand and prices are still relatively strong across most metals commodities although production costs constitute a challenge.

“As South Australia’s exploration-based PACE incentive program has shown, there is value in government putting money into drilling holes in the ground not just into holes emerging in corporate Australia’s balance sheets from the global financial crisis,” he said. “The sector knows there is a tough Federal budget coming up and we do not have confidence that it will necessarily stimulate the resources sector.

“Yet incremental Federal spending on mining-related infrastructure can provide a considerable boost to developers in getting major job producing mining projects off the ground. Any Budget stimulus in this direction will get more bang for its buck than many other stimulus packages.”

Dr Gould said Australia’s resources sector had reached a new plateau for further growth in the future and South Australia was well positioned to capitalise on this, especially in uranium. “The minerals industry economically, is the way forward in the future. It hasn’t failed and is not in a bell curve trajectory. The proof of that is that it accounts for at least 50% of Australia’s merchandise exports – and that’s not a picture that should cause despair.”

Rann’s message was that despite the global financial crisis, the fundamentals that underpin the sector in South Australia have not changed. “The potential of our State’s mineral and energy resources remains strong, and the future prospects for those industries here are bright. Indeed, the recent statement handed down by the South Australian Economic Development Board supported the view that – in the medium to long-term – the number of major new mining developments here will sustain economic development for decades to come.

“That’s in no small way due to the climate of investment certainty created by the State Government over the past seven years. We remain committed to providing the most efficient, transparent and timely approvals, and to providing investors with the confidence they need to make long-term commitments in the resources and energy sector.

“That commitment is characterised by our hugely successful PACE exploration program, which we launched in 2004. This $31 million investment has led to an unprecedented boost in mineral exploration activity in South Australia over the past five years. Prior to the introduction of PACE, the average annual expenditure on mining exploration here was around A$30 million. In 2008, even allowing for the advent of the global financial crisis, that figure was A$317.5 million.

“When this Government came to office seven years ago, South Australia had four operating mines. In 2009, we will have 11 with the likelihood that number will grow to 16 next year.

“More than 20 additional minerals projects are at the advanced exploration or resource assessment stage, or are currently progressing through pre-feasibility to mining proposal stage.

“The significance of our PACE scheme is highlighted by the fact that it is now being replicated by the governments of the Northern Territory, Queensland, Victoria and the nation’s acknowledged mining giant, Western Australia. Imitation is, indeed, the most sincere form of flattery.

“While the PACE scheme led to significant growth in exploration, it was not simply an anomaly associated with the global minerals boom. The projects that PACE supported are long-term, and they will deliver real and sustainable benefits to South Australia for decades to come, and even longer.

“The latest figures show that our State’s mineral exports for the year to February 2009 were A$3.1 billion, an increase of half a billion dollars over a 12-month period during a turbulent worldwide economic climate. That means the minerals sector has now eclipsed the State’s other export sectors including the wine industry, and accounts for around 30% of South Australia’s total merchandise exports. As a result, we are now considering significantly raising our minerals production target in South Australia’s Strategic Plan, which currently aims for annual production worth A$3 billion by 2014.

“This underscores the confidence that we have in the ongoing growth and prosperity of our resources industry. That confidence is fuelled by a number of important factors.

“Among them is the range of worldclass minerals projects that are due to begin production within the next year. They include Oz Minerals’ copper and gold operation at Prominent Hill that I will officially open later this month, and which is expected to be one of the State’s largest mines.

“The exciting Heathgate Resources development at Four Mile, near its existing Beverley deposit, is considered one of the most significant discoveries of uranium made anywhere in the world in the last 25 years.

“And Iluka Resources’ mineral sands deposit in the Eucla Basin on the State’s west coast is considered the most significant new source of zircon found in around four decades.

“The underlying strength of many of the minerals projects currently underway in South Australia is that they feature an expected mine life well in excess of the average 10 years. South Australia also benefits from the fact that we are strongly endowed with resources such as gold and uranium that have held their value amid the recent economic downturn.

Federal Minister for Resources and Energy, Martin Ferguson, recently indicated that he wants Australia to be the world’s biggest uranium exporter. South Australia, with its proven track record for supporting and developing uranium mining is clearly well positioned to be a leading provider to this low emissions industry over coming decades.

“The huge resource body at Olympic Dam, will become home to the world’s biggest uranium mine, which is expected to produce more uranium than the entire output of Canada, which is currently the planet’s largest producer. As you would have heard and read in recent days, the Olympic Dam expansion project continues to move forward, with its environmental impact statement released for community consultation last Friday. Due to the enormous scope of this project, the consultation period has been extended from the normal eight weeks to 14 weeks to allow widespread community input.

“As I mentioned earlier, South Australia provides a regulatory framework that allows investors to make plans with confidence and certainty. That is born out in the 2008 Resource Stocks World Risk Survey that rated South Australia as the best place in the nation, and the second-best jurisdiction in the world, for investing in mining.”

Only Finland was rated better, with the survey’s analysis finding that “South Australia is the best jurisdiction in this country by a significant margin” and the rating was “just reward for the investment the State has made in the resources sector”.

“Our Department of Primary Industries and Resources is setting itself a tough new target of six-months to approve new mining lease applications,” he continued. “The Government’s ongoing commitment and support can be seen through the next phase of the PACE program, which will include round six of the collaborative drilling program. The new program will include diamond drilling in unexplored frontier areas in the north of the State, along the largest continuous seismic line in South Australia.

“Our State’s global reputation for providing the most efficient, timely and transparent approvals is further enhanced by our commitment to the training and education of skilled workers. We continue to have historically high numbers of people undertaking training courses and apprenticeships. Earlier this year, I welcomed University College London as the latest international university to establish a presence in Adelaide. UCL is ranked seventh on the list of the world’s top 10 universities compiled by The Times Higher Education Supplement. It is offering a post-graduate Masters of Science in Energy and Resources that has been specially-developed for Adelaide. This is the first time that UCL has offered a degree program outside of Britain.

“The Government also established the A$8 million Resources and Engineering Skills Alliance in 2007 to actively address the skills shortage in these sectors, and also in the complementary heavy engineering industries.

“And our Resources and Energy Sectors Council continues to work closely with the industry and the Government to recommend and plan developments required for the industries’ future infrastructure needs. The Council is represented on the review panel for the Port Bonython development. In relation to this matter, the Government has received a comprehensive proposal from the Spencer Gulf Port Link, which it is now assessing.

“We also remain strongly committed to the growth and sustainability of our energy sector. Last week, the Government introduced our new Petroleum Act into State Parliament. This proposed legislation will further improve laws relating to petroleum and geothermal energy, and ensures that we remain up to date with the latest advances in emerging technologies such as hot rock power generation and greenhouse gas storage.

“Geothermal energy offers vast potential, and South Australia is clearly at the forefront of its exploration and development. From 2002 to last year, we attracted 97% of the national investment in the exploration and proof-of-concept projects for this truly emissions-free ‘hot rocks’ geothermal energy source.

“Geoscience Australia has estimated that if just 1% of Australia’s geothermal energy was extracted it would equate to 26,000 times Australia’s total annual energy consumption. South Australia’s leadership in this exciting, renewable energy source is not due to the fact that we have the hottest rocks on the planet.

“While it’s true that we have a comparative advantage in our naturally-occurring geothermal resources, we also have set the benchmark for Government-designed investment frameworks, implemented an exemplary and trustworthy regulatory regime, and engaged in effective marketing programs. We are also pleased that the Commonwealth Government has shown strong support for the advancement of geothermal energy. Recently, it provided A$7 million grants respectively for operators of the Paralana and the Limestone Coast geothermal projects.

South Australia is a national leader in geothermal and wind power, with around 58% of Australia’s total installed wind generation capacity. We are also home to more than 30% of Australia’s domestic grid connected solar power.

“In addition, we continue to progress the development of our traditional fuel sources. In the Cooper Basin, we are offering five new petroleum exploration licences with bids closing on October 15. Since 2002, 129 exploration wells and 45 appraisal or development wells have been drilled by new explorers in the Cooper Basin. These enterprises are providing greater diversity and balance to the State’s economy.”