The Boom Rolls On.

[Celt Down Under]

[h=1]Boom Number 3 rolls on while nobody's watching[/h]August 12, 2013, 11:32 amYahoo!7

Boom Number 3 is quietly rolling on while the popular media and Doomsday brigade seem to be conducting the Last Rites for mining.

[h=2][/h]

 

 

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  Michael Pascoe is one of Australia's most respected finance and economics commentators with 37 years in newspaper, radio, television and on-line journalism. He regularly appears on Channel 7's Sunrise and news programs and is a regular conference speaker, MC and facilitator.Full Bio »
   
  

 

 

 

 

 

 

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In short order, we’ve been told by the chiefs of the Reserve Bank of Australia, BHP, Rio, the China Mining Association and the Minerals Council of Australia that reports of the death of the resources boom have been greatly exaggerated.

Boom Number 3 is quietly rolling on while the popular media and Doomsday brigade seem to be conducting the Last Rites for mining.

Investors could be making a mistake by ignoring it.

The above-mentioned players might not be comfortable with the title “Boom Number 3”, but it’s a fair description.

All of them would prefer to forget how they were caught napping by Boom Number 1 and the excesses of Boom Number 2, especially the mining company executives who lost control and perspective for a while – a loss various workers are now paying for with their lost jobs.

Rather than identifying three separate booms, RBA governor Glenn Stevens spelt out the path of three phases of the one on-going boom at his annual Anika Foundation address last month.

For those who like to keep some perspective about the world, it’s well worth reading in full as media coverage was mainly limited to the usual search for half-perceived hints of interest rate movements rather than what the governor was actually discussing.

Using Stevens’ terminology then, Phase 1 was when prices suddenly started soaring a decade ago as demand took off in China. Phase 1 quickly resulted in Phase 2, “in which resource producers ramped up their investment to take advantage of demand for raw materials, in particular iron ore and natural gas, and to a lesser extent coal. Resource sector investment rose from an average of about 2 per cent of GDP, where it had spent most of the previous 50 years, to peak at about 8 per cent.”

It’s Phase 2 that caught most public attention as miners scrambled for the skills and resources to build new mines and expand existing ones.

As Stevens and every pet shop galah will tell you, Phase 2 is now ending – the big construction spend tapering off over the next few quarters and maybe falling sharply somewhere down the track.

The governor put it this way:

“That big rise is now over, and a fall is in prospect, with uncertain timing. It could be quite a big fall in due course.”

Given the bad-news-is-good-news nature of news, that promise of a big fall received media attention, but Stevens’ description of Phase 3 was missed:

“The third phase is now under way, in which we will see investment spending fall back, but a lift in volumes shipped of the various commodities. The latter has already started – for iron ore, volumes are rising at about 15 per cent per year – but shipments will probably increase further yet for some time and then stay high. Shipments of natural gas will not start increasing strongly until 2015, and will probably have several years of very strong growth, and then remain high for a few decades.

“In that third phase, real GDP will get a lift. National income measured in current dollars will also get a lift from the higher volumes, but that is likely to be offset in part, at least, by lower prices. The lift in real GDP coming from this rise in exports will be driven more by higher output per person; in fact, the level of employment needed to extract and ship the materials will be less than the level needed to build the capacity to do so.”

In other words, Phase 3 or Boom Number 3 will keep pushing hundreds of billions of dollars into the Australian economy even while the headline-dominating construction falls away.

It’s an important point to remember.

The BHP and Rio CEOs were trying to remind us of that last week while reporting their results.

Both companies now are making a virtue of cutting costs and selling off marginal or non-core projects, basically cleaning up after their predecessors during the first two phases were wildly throwing money at any problem instead of managing it.

The result is a promise of solid performance from here after the initial shock of adjusting to prices merely being very high instead of extremely high.

Meanwhile, the outgoing CEO of the Minerals Council, Mitch Hooke, in a speech to the drilling, mining and construction skills council, was stressing that China’s increasing demand for resources was far from over, that steel intensity had a long way to run yet, that a great deal more urbanisation and industrialisation was to come.

While complaining at a Melbourne lunch about the price of iron ore, the visiting vice-president of the China Mining Association, Wang Jiahua, also declared China’s boom was continuing.

And the statistics out of China last week backed that up.

Retail sales and industrial production continue to run along very nicely indeed, in keeping with annual growth of 7-point-something per cent for the world’s second largest economy.

Phase 2 ending is sorting out some of the resources wheat from the chaff – marginal players needed Phase 1 prices are being blown away – but investors walking away from resources completely could be sorting some sheep from the goats as well.

[newjez]

Is this really boom 3 - or just a bit more stimulus?

[VERYSTORMY]

The iron ore price has held up better than any one expected and the next 3 months will be the big maker for it. Traditionaly, the price drops at this time of the year. If it can keep above $120, then things are looking good for it.

 

However, with the rest of mining, there are very hard times at the moment. Gold companies are suffering massivley - the three biggest gold mines are Super Pit, which has laid off staff and warned of more to come. Sunrise Dam, which announced at Diggers that Anglo are reviewing if it can remain open - but at a production cost significantly higher than the gold price, it is not looking good. Telfer, which recently put its pit on care and maintanance with big job losses and it is reviewing if it can save the underground based on deep drilling - which as the person who designed the holes and has since leaving seen the results, i would not be hopful - the results are poor even for open pitable oe. For ore that is 1400m underground there not viable.

 

The nickel boys are suffering big time because of the price and there have already been a mass of layoffs and most of the mines are curently non profitable and using cash reserves to stay open in a hope the price recovers.

 

What this means for the greater economy is hard to say. Iron is the biggest commodity by export. However, it is a small employer compared to the gold and base metal mines as it is a different mining structure - some geologists argue it is not mining but quarrying.

[Mongrel]

The Chinese are cutting back on their production about 50 steel plants on c& m , still plenty more though

[Bobj]

The coal industry is looking to increase production and expand the Abbot Point loading facilities to 4 million tonnes per month.

Mining production has not slowed.

 

Cheers, Bobj.

[Guest scrumpy]

Surley business will be more focused once the election is over, isnt that soon??

[Petals]

Interesting I read that it will go on for some years to come. Then heard an expert say if we want to know about metals look at the price of copper, as metals become scarcer prices will rise so demand will always be strong.

 

Doom and gloom has no place we need optimism full glasses and go get it attitudes.

[Johndoe]

Interesting

 

Doom and gloom has no place

 

 

For some it does.........................to justify their distaste for all things Aussie

[newjez]

Interesting I read that it will go on for some years to come. Then heard an expert say if we want to know about metals look at the price of copper, as metals become scarcer prices will rise so demand will always be strong.

 

Doom and gloom has no place we need optimism full glasses and go get it attitudes.

 

go get attitudes don't drive asset prices.

[Guest Ptp113]

For some it does.........................to justify their distaste for all things Aussie

 

But they look like idiots and everybody knows it

[Paul1Perth]

The iron ore price has held up better than any one expected and the next 3 months will be the big maker for it. Traditionaly, the price drops at this time of the year. If it can keep above $120, then things are looking good for it.

 

However, with the rest of mining, there are very hard times at the moment. Gold companies are suffering massivley - the three biggest gold mines are Super Pit, which has laid off staff and warned of more to come. Sunrise Dam, which announced at Diggers that Anglo are reviewing if it can remain open - but at a production cost significantly higher than the gold price, it is not looking good. Telfer, which recently put its pit on care and maintanance with big job losses and it is reviewing if it can save the underground based on deep drilling - which as the person who designed the holes and has since leaving seen the results, i would not be hopful - the results are poor even for open pitable oe. For ore that is 1400m underground there not viable.

 

The nickel boys are suffering big time because of the price and there have already been a mass of layoffs and most of the mines are curently non profitable and using cash reserves to stay open in a hope the price recovers.

 

What this means for the greater economy is hard to say. Iron is the biggest commodity by export. However, it is a small employer compared to the gold and base metal mines as it is a different mining structure - some geologists argue it is not mining but quarrying.

 

Why are the gold miners suffering so much? Since 2000 the price of gold has risen by something like 460%, even on todays figures, where it's dropped back a bit recently. I know they blame costs of doing business but surely the workers haven't had a 460% rise in wages in that time. There were gold mines around in the 90's that I used to go out to often and the guys that worked there then were all on pretty good money. Gold price at the time was around $300. Plenty of mines around that must have been doing OK, plenty of mines around now that must be doing OK.

 

Just wondering if it's just bad management, bad investing, too much money taken out by the owners and very clever accountancy practices to help them not pay their tax liabilities. All the while putting out a sob story to reduce wages.

[VERYSTORMY]

Why are the gold miners suffering so much? Since 2000 the price of gold has risen by something like 460%, even on todays figures, where it's dropped back a bit recently. I know they blame costs of doing business but surely the workers haven't had a 460% rise in wages in that time. There were gold mines around in the 90's that I used to go out to often and the guys that worked there then were all on pretty good money. Gold price at the time was around $300. Plenty of mines around that must have been doing OK, plenty of mines around now that must be doing OK.

 

Just wondering if it's just bad management, bad investing, too much money taken out by the owners and very clever accountancy practices to help them not pay their tax liabilities. All the while putting out a sob story to reduce wages.

 

It is a combination of things that is hitting the gold miners - particularly the Oz ones. Yep, the price is still, by historical standards, high. But, costs have gone up massively. For example, Newcrest which is Autralias biggest gold miner. In the last 12 months its employee costs were up 12%. Its energy costs 31%, its mining consumables 11%. These are the sort of figures that have played out during the boom and often higher. Add on things like the carbon tax which a number of mines were cited for including my last mine - Telfer - which was slugged with $23 million and which they have no way of reducing as they cant reduce energy use. The paperwork and hidden taxes in Oz are the big killers. For example. To drill a diamond drill hole in Oz (it is the main methof of drilling with a diamond bit) costs about $340-380 per meter. But, for me to drill the same hole here in Tanzanaia with the same company and shipping the rig over and flying the guys over, costs me $157 a meter. The difference is because of the hidden costs. Gold needs the tightest spaced drilling of all mineral deposits. So, it has higher costs.

 

The first meeting i had at work in Oz was a budget meeting. I remember looking through the briefing notes and noticing that we were paying nearly $100k for a truck driver. The first comment i made in my first meeting was "the industry is not sustainable in this country".

 

There have also been some poor decisions made by the miners. I am always amazed how dim they can be. Everyone knows the industry is very much boom and bust. Yet everytime there is a boom they seem to forget and assume this is the boom that lasts forever. None of them plan for the day the prices drop. I have asked a number of senior management and board level staff what there plan is for when they wake up one morning to find the metal price has crashed. Without fail you get a blank stare

[VERYSTORMY]

Interesting I read that it will go on for some years to come. Then heard an expert say if we want to know about metals look at the price of copper, as metals become scarcer prices will rise so demand will always be strong.

 

Doom and gloom has no place we need optimism full glasses and go get it attitudes.

 

Over 90% of the world have never been explored for metals. Of the 10% that has, most has been selectively explored - eg tested for a particular mineral but not for others. The world is a VERY long way from running out of minerals (with the exception of one or two of the rare earths and a couple of odd ball things such as Tanzanite)

[Paul1Perth]

It is a combination of things that is hitting the gold miners - particularly the Oz ones. Yep, the price is still, by historical standards, high. But, costs have gone up massively. For example, Newcrest which is Autralias biggest gold miner. In the last 12 months its employee costs were up 12%. Its energy costs 31%, its mining consumables 11%. These are the sort of figures that have played out during the boom and often higher. Add on things like the carbon tax which a number of mines were cited for including my last mine - Telfer - which was slugged with $23 million and which they have no way of reducing as they cant reduce energy use. The paperwork and hidden taxes in Oz are the big killers. For example. To drill a diamond drill hole in Oz (it is the main methof of drilling with a diamond bit) costs about $340-380 per meter. But, for me to drill the same hole here in Tanzanaia with the same company and shipping the rig over and flying the guys over, costs me $157 a meter. The difference is because of the hidden costs. Gold needs the tightest spaced drilling of all mineral deposits. So, it has higher costs.

 

The first meeting i had at work in Oz was a budget meeting. I remember looking through the briefing notes and noticing that we were paying nearly $100k for a truck driver. The first comment i made in my first meeting was "the industry is not sustainable in this country".

 

There have also been some poor decisions made by the miners. I am always amazed how dim they can be. Everyone knows the industry is very much boom and bust. Yet everytime there is a boom they seem to forget and assume this is the boom that lasts forever. None of them plan for the day the prices drop. I have asked a number of senior management and board level staff what there plan is for when they wake up one morning to find the metal price has crashed. Without fail you get a blank stare

 

Bit of a big call in your first meeting to say it's not sustainable and blame the $100k truck driver. Like I said when gold was $300 the guys working on crushers in Kalgoorlie were on something like that back in the mid 90's. The goldminers were making a profit then so I don't think it's wages. The big companies always use that excuse. I would like to see some of the executive pay and bonuses. The miners are about as bad as the banks for saying how bad things are going and then releasing record profits every year.

[newjez]

Interesting I read that it will go on for some years to come. Then heard an expert say if we want to know about metals look at the price of copper, as metals become scarcer prices will rise so demand will always be strong.

 

Doom and gloom has no place we need optimism full glasses and go get it attitudes.

 

The price of copper is a funny one - I read this recently - they seem to be using copper more like gold than for it's intended use.

 

http://www.fastmarkets.com/base-metals-news/gs

[fourcorners]

While some miners are reducing wages, the majority are not. Instead, people are being retrenched and the remaining staff are covering the vacant positions. If we're honest about this, it needed to happen. There's a lot of inefficiency and free-loading within the mining industry which drives up operational costs. It's unfortunate for the good ones that get caught up with this but I can tell you from personal experience there are people earning >$150k/yr that work at 25% efficiency. They're dragging down the whole industry.

 

I've worked worldwide and one thing I have noticed is that Europeans and North Americans are hungry for work and will give it their all. Australians have been spoiled and as a result, are lazy and deserve everything they get

[Johndoe]

Australians have been spoiled and as a result, are lazy and deserve everything they get

 

All Australians? I think I need another break, before I (verbally), rip someone's head off. What do you think the reaction would be if an Aussie politician stated that lebanese/poms/aboriginals were lazy?

Edited August 16, 2013 by Johndoe

[Ellie 2]

While some miners are reducing wages, the majority are not. Instead, people are being retrenched and the remaining staff are covering the vacant positions. If we're honest about this, it needed to happen. There's a lot of inefficiency and free-loading within the mining industry which drives up operational costs. It's unfortunate for the good ones that get caught up with this but I can tell you from personal experience there are people earning >$150k/yr that work at 25% efficiency. They're dragging down the whole industry.

 

I've worked worldwide and one thing I have noticed is that Europeans and North Americans are hungry for work and will give it their all. Australians have been spoiled and as a result, are lazy and deserve everything they get

 

 

Perhaps it's time you departed. The vast majority of Australians work very hard and efficiently.

[fourcorners]

All Australians? I think I need another break, before I (verbally), rip someone's head off. What do you think the reaction would be if an Aussie politician stated that lebanese/poms/aboriginals were lazy?

 

What's it got to do with politicians? Besides, how often do some members on here makes sweeping generalisations about poms being whinging, ungrateful, deluded people?

 

I would actually like to say that the previous post was made by my other half, he was on the computer when I was in the bath and thought he would have some fun. I personally do work with a couple of Aussies who are lazy and pathetic, but I've worked with people of other nationalities who are lazy and pathetic too. I think the point he was trying to make, somewhat ineloquently, is that people in the Australian mining industry have had it very good for a very long time. Normally downturns weed out the lazy folk who quickly find themselves out on their backside, as it any other industry. The fact is there hasn't been one that has had this much impact in terms of redundancies for a long time, so you do get a fair few people in positions they shouldn't be in.

[VERYSTORMY]

Bit of a big call in your first meeting to say it's not sustainable and blame the $100k truck driver. Like I said when gold was $300 the guys working on crushers in Kalgoorlie were on something like that back in the mid 90's. The goldminers were making a profit then so I don't think it's wages. The big companies always use that excuse. I would like to see some of the executive pay and bonuses. The miners are about as bad as the banks for saying how bad things are going and then releasing record profits every year.

 

I disagree Paul. For example, Telfer is known as being a payer in the mid range for gold - gold pays significantly less than iron ore. But, salary makes up over 50% of its costs. It is currently costing over $1500 per Oz to produce there. So salary is about $800 an Oz. That is massive.

 

Not disagreeing with there is a lot of waste. Fourcorners has a very valid point. I see things in Oz mines and waste that would never be tolerated on other sites in the world.

 

The government make it very hard for miners. I have never seen such mountains of paperwork as i see in Oz and the duplication of things that are needed to be done for different government departments. Where i am now in Tanzania can be bad as they are an ex communist country and still caught in a maze of bureaucracy - this is a country that comes to a halt for upto 4 months a year to do the budget speech. Yep 4 months. But, it is not as bad as Oz for paperwork for mining. My company has a project in South Australia and my project here. The SA one requires a team of people to process the admin and things. I dont need anyone and this project is 4x as big.

[flag of convenience]

Perhaps it's time you departed. The vast majority of Australians work very hard and efficiently.

 

Come now another gross generalisation.

[jinn]

All commodities prices are going down, in last 6 months, iron ore, coal, gold, silver, steel, aluminium, copper, and every metal:

http://www.indexmundi.com/commodities/?commodity=iron-ore

 

Mining boom is over in Australia, did not die yet, but is over. Some ore will be in demand but Australia won't make so much money on its commodities like used to be. Brainless Aussies expected it to last forever, now surprise, world doesnt need so much raw materials

[Ellie 2]

Come now another gross generalisation.

 

No more of a generalisation than your post.

[flag of convenience]

All commodities prices are going down, in last 6 months, iron ore, coal, gold, silver, steel, aluminium, copper, and every metal:

http://www.indexmundi.com/commodities/?commodity=iron-ore

 

Mining boom is over in Australia, did not die yet, but is over. Some ore will be in demand but Australia won't make so much money on its commodities like used to be. Brainless Aussies expected it to last forever, now surprise, world doesnt need so much raw materials

 

Always the same, but hopefully a return more to the norm than bust. The positivity around most things somehow seems to disallow critical thinking. A big flaw in my view with regards Australia.

[flag of convenience]

No more of a generalisation than your post.

 

The thing being of course is that I didn't generalise.