Australia’s resources fraternity has been warned that current cost pressures on advancing or expanding projects will progressively claim a number of mining hopefuls. Addressing the inaugural Paydirt 2008 Victoria Resources Conference, Melbourne-based Philip Resources Fund Chief Investment Officer, Chris Bain, said some companies would not survive the current resources boom. “Within this cycle, low exploration has meant a limited inventory of new large mine developments; ongoing tight short-term minerals supply, rising development costs, greater hurdles for project finance, higher operating costs and a squeeze on margins even despite high metals prices.”

“Within this environment, there would be three outcomes:

• Companies yet to complete the financing of their mining project will suffer additional delay
• Producers high on the cost curve face short-term difficulty and some will not survive in their current form
• Low cost producers will reap significant benefits from any short-term downturn for the resources sector.”

Bain pointed to the savage turnaround for Australia’s resources equities in the past two months. “These equities held early in the year against the meltdown caused by the economic problems in the US,” Bain said.

“Yet in the past eight weeks, the Metal and Mining Index has crashed 28% and masked within that, are falls of up to 70% for some of the more junior mining exploration and development plays. While I believe markets are overly pessimistic about the short-term outlook for commodities, this combination of falls in metal prices and rises in costs has created a market nervousness that there are more nasty surprises in store. Longer term, we have a cycle that is not just the short boom-bust of the past few decades but is more akin to the UK Industrial Revolution that lasted around 65 years.”

Bain also pointed to likely changes in future mining methodologies as cost and green energy pressures impacted. “Much of Australia’s mining growth in the past 25 years has been based on massive open pit mining using the economies of scale of ever larger mobile equipment and cheap diesel. In an increasing carbon constrained environment, high carbon emitting projects will be marginalised by investors just as environmentally damaging projects have been over the past decade.

“Technology gains in mining are becoming incremental and as energy costs lower open pit strip ratios, expect to see underground mining going ahead sooner in the life of an ore body. Traditional low cost underground mining techniques such as sub-level open stoping and block caving where gravity does the work, will replace some of these ultra deep open pits. Mobile equipment that is electric or air powered will make a comeback with conveyor belts and shafts bringing the ore to surface. We are also likely to see more in-pit crushing and initial beneficiation to reduce haulage costs.”

Bain warned that the drive for energy efficiency would also see more robotic miners reducing the need for people, reducing underground ventilation costs and improving efficiency in open pits and ore transport.