Minerals Council of Australia (MCA) Chief Executive Mitchell H Hooke explains that on every key indicator the Australian minerals industry is recording unprecedented levels of performance and is primed for a period of sustained growth, notwithstanding a significant increase in costs. This, Hooke says, is in stark contrast to the performance of the industry over the past 30 years where at times, it barely recovered the cost of its investment capital, suffering low prices on account of excess supply, high costs, relatively poor productivity, and regulatory impediments to growth.

Australia’s 30th Annual Minerals Industry Survey (MIS) report, a joint initiative of the MCA and PricewaterhouseCoopers was released December 13, revealing the scale of the boom in the Australian mining industry and the improved financial performance of the Australian minerals industry and the extent of its contribution to the Australian economy. Companies participating in the survey represent nearly 95% of Australia’s minerals production.

The survey shows net profit increased by 74% to A$11.8 billion – the highest level in the 30 years of the survey. This is a function of:

• Increases in total revenue of 31% to $59.2 billion, reflecting:
  • a moderate increase in mining, smelting and refining production and,
  • a substantial increase in minerals prices rising, on a weighted average, of 45% over the preceding year and 70% compared to 2002-03 prices.
• Increases in total expenses by 16% to $43 billion over the preceding year, comprising:
  • 13% increase in labour costs
  • 11% increase in government rail and port charges
  • 12% increase in production and operating costs (an increase from 40% of total expenses in 1977-78 to 70% in 2005-06).
  • 9% increase in depreciation and amortization
  • 23% increase in interest expense
  • 49% increase in royalties paid to State/Territory Government

Governments’ treasuries, in turn Australian society as a whole, have significantly benefited from the industry’s improved performance with the total of all taxes payable to all governments rising by 120% to $7.1 billion. This comprises:

• A 49% increase to $2.15B in royalties paid to State/Territory Governments
• A 248% increase in income tax commitments to the Federal Government to $4.33 billion
• A 7% increase in indirect taxes (payroll, FBT, land etc) to $0.55 billion.

The minerals sector has also contributed to a sharp improvement in Australia’s terms of trade with exports in minerals resources rising by 32% in 2005-06 to $92 billion. This is projected to increase in 2006-07 by a further 18% to $108.1 billion.

Hooke says: “The survey indicates the extent to which the industry is gearing up production and export capacity to meet the continuing growth in demand for minerals products from the industrializing economies of Asia, particularly China and India, underpinned by the sustained demand from traditional markets, Japan, Republic of Korea, and Taiwan:

• Total assets increased by 16% to $143.5 billion, within which fixed and deferred assets and stock of operating current (cash) assets increased by 10% and 24% respectively
• Capital expenditure on minerals production and related infrastructure projects is predicted to remain strong – with a record number of projects, either committed or under construction representing around 20% of Australia’s total project expenditure
• Total employment in the industry rose by 19% – 13,206 persons to 82,588.

Hooke said: “We remain confident that we are a couple of years into a super cycle of demand, driven by the underlying structural adjustment in the global market.” The upshot, he said, is a sustained new plateau of price cyclicality, the extent of which will depend on where supply catches up with demand.

“Supply capacity constraints have been the key economic policy problem in preventing Australia fully benefiting from the strongest global market growth in a generation – capacity constraints to growth continue to frustrate the industry’s expansion – specifically in human resources and skills shortages, transport and port infrastructure, minerals exploration, and complex and inconsistent regulation governing project approvals and occupational health and safety.

“In addition, the industry faces significant increases in operating costs, competition for capital from substitute materials and other sources of supply. And there is a widely held perception that the industry is so flush with funds that it is an easy accessible substitute for governments’ responsibilities in building social and hard infrastructure, particularly in remote and regional Australia.

“The MCA continues to warn of the dangers of reform complacency and strongly advocates Governments’ invest in social and physical infrastructure and regulatory reform for continued wealth creation. This, in preference to spending and personal tax cuts driving domestic demand and consumption rather than supply, with the attendant risks of a fiscal stimulus to the domestic economy, sponsoring a further tightening in monetary policy and an appreciation in the exchange rate.”

The MCA is advocating:

• Comprehensive regulatory reform for national consistency in project approval processes (land access and use) and occupational health and safety complemented by increased resourcing for key Federal agencies in environment and Indigenous relations
• Further improvements to the vocational education and training systems to deliver improvements in employment and training to address professional and trade skills shortages
• Further reforms to business taxation arrangements to improve Australia’s investment attractiveness and international competitiveness
• Reforms to competition laws governing access regimes to export corridors (rail and port infrastructure) to complement significant increased industry investment, and to effect water and energy market reforms
• Better alignment of public sector research and development capacity with industry needs
• Governments at all levels focus on the critical depletion of physical and social infrastructure in regional and remote Australia – in partnership with industry, but not as a surrogate for core government responsibilities, particularly in education, training, housing, and health
• Complement the Government’s injection of extra resources in pre-competitive geoscientific data with the introduction of a flow through shares scheme to boost investment in exploration
• Strong support for WorkChoices legislation as a key platform for workplace arrangements that enhance direct relationships between employer and employees critical to improved productivity and employee welfare
• A proactive strategy to the global challenge of reconciling energy security with managing climate change, emphasizing transformational technological developments across all sources of energy, coupled with market mechanisms that are economically efficient and environmentally effective in reducing greenhouse gas emissions.

The 2006 Minerals Industry Survey is available on the MCA website: www.minerals.org.au