northshorepom Posted August 25, 2012 Share Posted August 25, 2012 A question to Northshore or VS (or anyone, just those 2 may know the answer). When I was in Kalgoorlie last year myself and an ex-Aussie Army guy I'd met up there we sitting around discussing economics outside the shop / canteen thing on a BHP site (on our own of course, everyone else had us marked down as the boring bastards). Anyway a guy came over who I'd seen at all the inductions and was obviously one of the bosses. No idea who he was, what he did, how high up he was but he said something very interesting. He said that BHP's record profit that year had mainly come from financial services, not mining. Basically as a large multinational operation they need to hedge against currency fluctuations in order to maintain worldwide operations. But what had once been a means to enable production, and thus profits, was now where most of the profit was coming from. As a result the brighter guys at the very top of the company were looking down on day-to day production as the means of achieving profits. Does that sound at all believable or was he talking nonsense or is there a grain of truth somewhere in there but he was massively overblowing it? Off the top of my head, I would say that I don't work directly in the sector (I work in the sector that services the new developments, construction) but resources companies IME exist to do what they say on the tin, and the rewards for focusing on that, and the risks involved in it, require them to be pretty fully focused or they can rapidly lose their shirts. It's a very high risk/reward sector because you are totally at the mercy of the commodity markets. So in times of high prices you will make vast profits, when prices drop (and they tend to drop sharply), your profitability falls off a cliff. That's partly why they are so sensitive and fast moving on their investment decisions - they have to be. The huge profit sums come from the volume they are shifting more than the margin on each unit so when that margin drops, profits drop a lot. I know oil and gas a lot more than minerals but I expect the drivers are similar. Companies hedge where they can, and of course they are very big players in Forex markets and global capital markets for this reason, but IMO it's a bit like the treasury department of a big bank which has to do the same - it is part of the armoury of risk control that a company with that level of exposure to volatile markets needs. In O&G the nature of the market has also driven the companies to divest themselves of lots of the ancillary or lower risk/reward elements of the value chain in order to focus on where they take the risk and make the money. Hence energy cos have sold off most of the refining, transport, wholesale and retailing work to outside contractors as it sucks up a lot of business energy and working capital without making much difference to the bottom line - they have concentrated on upstream (exploration, extraction and first chain procession) and essentially sell crude oil, natural gas or LNG as their main products, and only kept on the other areas that are really required to service that the treasury/finance functions, processing of by products and so on. I haven't looked too much at mineral firms but would be surprised if they haven't done the same, it makes business sense Give me a few hours - I'm just off to watch the recorded Bledisloe Cup, don't go giving me the result now a la Likely Lads - and I'll have a look at BHP's annual report and see what I think from that. Public company so it shouldn't be hard to find. My gut tells me they are a resource company and exist to dig out minerals and sell them, not to do complicated finance deals to service that. That's what the financial services sector is for NB On a sort of mining related issue, it's worth watching what happens with Nathan Tinkler over the next few weeks. Some real monkey business seems to be coming to light :wink: Link to comment Share on other sites More sharing options...
Rugby Lad Posted August 25, 2012 Share Posted August 25, 2012 Off the top of my head, I would say that My gut tells me they are a resource company and exist to dig out minerals and sell them, not to do complicated finance deals to service that. That's what the financial services sector is for Thanks for that answer mate. Pretty much exactly what I thought. Enjoy the game. Link to comment Share on other sites More sharing options...
Joebloggs Posted August 25, 2012 Share Posted August 25, 2012 You do sound like you know what you are talking about, do you think it will effect the dollar to the pound? Possibility Yes, part of the problem is the high $AUD, The super profits mining tax and the Carbon Tax. Australia is simply priced out of the market these days. Although the one thing that Australia does have is stability, a lot of other mining resources in some of these other countries that are not that politically or security stable. If the industry takes a tumble the $AUD could fall against the $US, this might improve the £ against $AUD but it will never be back to the level it was 5 years ago. The bad news is there is a good possibility that there will be job losses and unemployment will rise, so although the £ would be more favorable it would not be a good time to move to Australia even if you had a visa. The last time something of this proportion happened was GFC in Nov 2008 and DIAC brought in the Priority processing on 17th Dec (I remember it well), a few months later and Skilled migration was cut from 133,500 to 108,100. Link to comment Share on other sites More sharing options...
northshorepom Posted August 25, 2012 Share Posted August 25, 2012 Possibility Yes, part of the problem is the high $AUD, The super profits mining tax and the Carbon Tax. Australia is simply priced out of the market these days. Although the one thing that Australia does have is stability, a lot of other mining resources in some of these other countries that are not that politically or security stable. I think the benefits of being stable are overblown for resources. Again I'm talking more from O&G experience than minerals. The risk of being nationalised and effectively having your stake stolen may be small in a stable democracy, but the risks that you will be hit with a tax out of nowhere for political reasons is pretty high, as is the risk of delays or cost blowouts caused by changes in environmental legislation or union action. The size of the former risk is higher, but the likelihood is much lower. Australia's weak pollies IMO hurt it as an investment proposition because let's face it, you really couldn't trust them not to chuck a new tax or piece of bureaucracy at you if they thought there was a few votes in it - they do it all the time Working in a banana republic isn't so bad - sure you have to grease palms but as long as you play a political game and grease palms all round, you can be pretty sure you are unlikely to get nationalised unless you're dealing with a real dominant ogre with no likely opposition (Putin) or a loony (Chavez). Meanwhile you know you're going to be able to operate a heck of a lot more cheaply than you are in a 1st world nation, and no one is going to throw 12 month enviro licence delays or "mineral resource rent" taxes at you - because the government has a stake themselves and would only be ripping themselves off Link to comment Share on other sites More sharing options...
VERYSTORMY Posted August 25, 2012 Share Posted August 25, 2012 I am pretty much with Northshore. The issue isnt that mining and minerals are no longer needed. But where the cpmpanies want to operate. Australia has become fantastically expensive. Hence, why a lot of companies are not planning on stopping, but diversifing out of Oz. World wide there is going to be a slow down. But there will still be mining, just not as much of it. We all want to buy things and the things we buy are ever more resource hungry. A smart phone has over 200 minerals and requires input from over 80 mines. But where them mines are is the big issue. Worldwide, we are seeing a slowing, but that is being amplified in Oz. Money for development and exploration is tight. If you are a junior exploration company where you are watching the money a lot, you want to get maximum return for every dollar. So do you spend $400 a meter on drilling a hole in WA or $180 a meter in Africa? If you are a mining company do you pay $1.2 million for a truck in Oz or $800k for the same truck in Africa? The carbon tax is going amplify the situation. My site is one of the prescribed sites. We cant realistically do anything to reduce our energy use and our product - gold, is sold in a way that we dont have any real say in and a price we dont control, so we cant just put our prices up. But the carbon tax reduces total profit by 3%. So that means we have to find that from somewhere. The result is that the company have announced there will now be no capital expenditure in Oz. Thats after we had just finished drilling a new deposit which is now just going to sit there. As for the comment that mines are closing. No, not yet. That isnt the way it works. Closing a mine or as its know in the industry "care and maintanance" is a massive decision. Most mines are owned by companies where that one mine is their only source of income. Also, because of the technical issues such as water ingress, everybody knows that most mines that go that route never reopen. So it is the last resort and companies will try to live with being loss making for a while. But eventually, unless metal prices swing up, they close. I am aware of a fair number of mines in Oz that are now marginal or loss making. I expect to see, unless there is an upswing in prices, the first to go care and maintance by early next year. It usually start with nickel which has fallen 25% in the last 12 months. Link to comment Share on other sites More sharing options...
paul1977 Posted August 25, 2012 Share Posted August 25, 2012 I think we are in for some rough times ahead- whether it is as bad as Europe, who knows? Certainly there seems to be an increase in redundancies in Victoria, nothing to do with the mining industry though. Can back you up about Victoria , I spoke to the union and they said 600 electricians were about to be finished up on mining projects . Link to comment Share on other sites More sharing options...
TheBrammies Posted August 26, 2012 Share Posted August 26, 2012 Define boom in my thoughts is rapidly expanding ,and in that case yes the boom is nearly over there are thousands more jobs in the construction phase than the actual operation phase of a mine so yes there will be a decrease in employment but the mines are here to stay for the next hundred years or more australia isnt the only country with minerals its just that they have the infrastructure here but they have to be careful to keep the operating costs down or the mining companies will just shut shop and go elsewhere but if your work isnt connected to the mines then what does it matter europe is in a mess but people arent starving if you have your jobs still then whats change for you the mortgage rates are low prices are getting cheaper so you should be better off. Link to comment Share on other sites More sharing options...
Galahad Posted August 26, 2012 Share Posted August 26, 2012 Wow - what an interesting thread - don't have any connection with, or knowledge of the mining industry, but love to learn what people who know what they're talking about think..... On a (perhaps) very basic level - I know I'd rather be sitting on a deck with a tinny & a bag of chips in the warmth of a November evening in Australia, bemoaning the state of the economy, than huddled over a one-bar electric fire here in the UK with the curtains drawn at 4.30pm because it's pitch dark outside anyway & I can't afford to run the gas-fired central heating because it's too expensive to consider.... :eek: Link to comment Share on other sites More sharing options...
paul1977 Posted August 26, 2012 Share Posted August 26, 2012 Wow - what an interesting thread - don't have any connection with, or knowledge of the mining industry, but love to learn what people who know what they're talking about think.....On a (perhaps) very basic level - I know I'd rather be sitting on a deck with a tinny & a bag of chips in the warmth of a November evening in Australia, bemoaning the state of the economy, than huddled over a one-bar electric fire here in the UK with the curtains drawn at 4.30pm because it's pitch dark outside anyway & I can't afford to run the gas-fired central heating because it's too expensive to consider.... :eek: When you Move to Australia your find your be very very cold at night in June July time, as most wanna be poms will tell you 'you get bigger houses in oz' yes you do on average but then you will have to try to heat them in winter using your reverse air con and I can tell you that's it's Megga expensive to run. It gets dark about 5.30 mid winter but I can assure you it's just as dear if not dearer to heat your house here than there, and remember as soon as you turn it off within a minte your houseis freezing again. Just an opion of someone who is living it. Link to comment Share on other sites More sharing options...
Jackinabox Posted August 26, 2012 Share Posted August 26, 2012 When you Move to Australia your find your be very very cold at night in June July time, as most wanna be poms will tell you 'you get bigger houses in oz' yes you do on average but then you will have to try to heat them in winter using your reverse air con and I can tell you that's it's Megga expensive to run. It gets dark about 5.30 mid winter but I can assure you it's just as dear if not dearer to heat your house here than there, and remember as soon as you turn it off within a minte your houseis freezing again. Just an opion of someone who is living it. Those wannabe poms have a solution for that.................its called energy efficiency and can be achieved through decent insulation and double glazing. They spend money on it in the UK and are usually very snug. Perhaps the Aussies could do the same and also take more advantage of that big orange thing that shines for 300 + days per year. Just an opinion of someone who has experienced more than 35 UK winters, 5 German winters and numerous Canadian winters at -45. Now thats cold. Link to comment Share on other sites More sharing options...
Galahad Posted August 26, 2012 Share Posted August 26, 2012 Hi Paul..... I'm actually a citizen - have lived in Sydney, The Hawkesbury & for the last 15 years or so in S.E. Queensland.....always on acreage & always with many horses.... I LOVE, LOVE, LOVE Queensland Winters....the 5.30-ish darkness simply meant I needed to 'feed up' earlier.... And of course I kept the Uggs & the sheepskin gilet.... I will have been in England 3 years at the end of this year (came over to care for my elderly Mum when I retired, until she passed away in February) & despite eating jam butties all Summer to save the money to fly two :animal-dog::animal-dog: & a :animal-cat: back (who all came with me to the UK) I cannot wait to go riding again in the Queensland sunset on me big black 'orse - him in the profile pic..... Have I been cold in Australia ? 'Course I have.... Have I spent as much on heating a home in Australia as here in the UK, even given that Mum was in a nursing home during last Winter, so just keeping me warm - through Winter & this less than wonderful Summer ? Nope. Does that make me a 'wannabeagain'....! Link to comment Share on other sites More sharing options...
Bobj Posted August 26, 2012 Share Posted August 26, 2012 When you Move to Australia your find your be very very cold at night in June July time, as most wanna be poms will tell you 'you get bigger houses in oz' yes you do on average but then you will have to try to heat them in winter using your reverse air con and I can tell you that's it's Megga expensive to run. It gets dark about 5.30 mid winter but I can assure you it's just as dear if not dearer to heat your house here than there, and remember as soon as you turn it off within a minte your houseis freezing again. Just an opion of someone who is living it. You could always do what squillions of Vics do, go "walkabout", and do the 'gray nomad' bit as soon as it gets below 10 C. The far north of Australia is awash with the bludgers from May, through to September.:laugh: Cheers, Bobj Link to comment Share on other sites More sharing options...
Bobj Posted August 26, 2012 Share Posted August 26, 2012 [h=1]Is Australia's mining boom over?[/h] Bl**dy well hope not...Going fossicking for garnets and aquamarines etc. next week... . Cheers, Bobj. Link to comment Share on other sites More sharing options...
bunbury61 Posted August 26, 2012 Share Posted August 26, 2012 Wow - what an interesting thread - don't have any connection with, or knowledge of the mining industry, but love to learn what people who know what they're talking about think.....On a (perhaps) very basic level - I know I'd rather be sitting on a deck with a tinny & a bag of chips in the warmth of a November evening in Australia, bemoaning the state of the economy, than huddled over a one-bar electric fire here in the UK with the curtains drawn at 4.30pm because it's pitch dark outside anyway & I can't afford to run the gas-fired central heating because it's too expensive to consider.... :eek: you will have to tell me which part of planet U.K you are in ......the nights might be dark ......but theres certainly no struggle where we are .......pubs are full .....all the lads have work ......couple of holidays a year .......new cars Link to comment Share on other sites More sharing options...
paul1977 Posted August 26, 2012 Share Posted August 26, 2012 Hi Paul.....I'm actually a citizen - have lived in Sydney, The Hawkesbury & for the last 15 years or so in S.E. Queensland.....always on acreage & always with many horses.... I LOVE, LOVE, LOVE Queensland Winters....the 5.30-ish darkness simply meant I needed to 'feed up' earlier.... And of course I kept the Uggs & the sheepskin gilet.... I will have been in England 3 years at the end of this year (came over to care for my elderly Mum when I retired, until she passed away in February) & despite eating jam butties all Summer to save the money to fly two :animal-dog::animal-dog: & a :animal-cat: back (who all came with me to the UK) I cannot wait to go riding again in the Queensland sunset on me big black 'orse - him in the profile pic..... Have I been cold in Australia ? 'Course I have.... Have I spent as much on heating a home in Australia as here in the UK, even given that Mum was in a nursing home during last Winter, so just keeping me warm - through Winter & this less than wonderful Summer ? Nope. Does that make me a 'wannabeagain'....! Go play with your horse.....! Link to comment Share on other sites More sharing options...
Galahad Posted August 26, 2012 Share Posted August 26, 2012 Bunbury.....South Devon - big old Victorian house (all double glazed though) .... but it's so damp down here .... Queensland humidity without the warmth ! Paul - There's a saying that one of the best ways to view the world is through a horse's ears at a canter..... Yep - I'd have to agree with that..... And to those guys giving serious info. about the mining industry- sorry - & Thanks, really do appreciate the knowledgeable views.... Link to comment Share on other sites More sharing options...
fourcorners Posted August 27, 2012 Share Posted August 27, 2012 Personally I think whether the mining boom is over or not, what Martin Ferguson said in the press will do more harm than anything else. He has since been made to apologise but the damage will have already been done. Yes I think base metal prices will start to reduce, but as there is still so much political insecurity in the world and whilst Europe is in the recession, precious metal prices will remain up if not rise further. But given the rising costs of everything in Australia I agree with Stormy and northshorepom in that mining companies will now consider other countries more seriously and perhaps shelve Australian projects or reduce their Australian budgets. In my view the two-speed economy here is totally unbalanced and unsustainable in the long term. So a bit of self-righting is necessary and long overdue. Not that I'm complaining, I got my job because Australia can't educate enough geologists of it's own! I just hope it holds out long enough... Link to comment Share on other sites More sharing options...
VERYSTORMY Posted August 27, 2012 Share Posted August 27, 2012 Personally I think whether the mining boom is over or not, what Martin Ferguson said in the press will do more harm than anything else. He has since been made to apologise but the damage will have already been done. Yes I think base metal prices will start to reduce, but as there is still so much political insecurity in the world and whilst Europe is in the recession, precious metal prices will remain up if not rise further. But given the rising costs of everything in Australia I agree with Stormy and northshorepom in that mining companies will now consider other countries more seriously and perhaps shelve Australian projects or reduce their Australian budgets. In my view the two-speed economy here is totally unbalanced and unsustainable in the long term. So a bit of self-righting is necessary and long overdue. Not that I'm complaining, I got my job because Australia can't educate enough geologists of it's own! I just hope it holds out long enough... Dont worry. Even if it does fall down around us, there are lots of other countries that are fun to work in. China was amazing, Peru and Chili are great and parts of Africa are great fun Link to comment Share on other sites More sharing options...
fourcorners Posted August 27, 2012 Share Posted August 27, 2012 Interestingly, we've just had a flyer sent round at work from HR listing vacancies. It was empty! This is probably the first time since the mine came into operation 5 years ago that there are no vacancies here! Link to comment Share on other sites More sharing options...
northshorepom Posted September 4, 2012 Share Posted September 4, 2012 For anyone who doubts how quickly resources sector operators swing their investment decisions round if the market changes: http://www.brisbanetimes.com.au/business/mining-and-resources/fortescue-cuts-spending-staff-as-ore-prices-fall-20120904-25bf8.html Again no massive surprise given FMG's gearing. And it's not all doom & gloom, a bit of heat coming out of the "boom" was well overdue I think. But the idea that loads of Capex is somehow "locked in" and will be delivered no matter what the output price of the product, was always silly and this sort of thing emphasises it. When you're dealing with the volumes the resources companies deal with, a few mill dropped on cancellation payouts to contractors is peanuts compared to the bath you might end up taking on the capacity expansion if you end up selling the product at a loss or small margins. So they'll act very very quickly when the conditions dictate They'll act equally quickly when conditions swing the other way, too, particularly if all the environmental/planning approvals are already dealt with Link to comment Share on other sites More sharing options...
Six it Posted September 4, 2012 Share Posted September 4, 2012 well the LNG plants still need to be finished off. So i am here for another year or so.. after that.. who knows.. they have just found a load in Mozambique (LNG)... or maybe the DOHA port expansion... or just take a year off and relax and wait for an opportunity..! Link to comment Share on other sites More sharing options...
VERYSTORMY Posted September 4, 2012 Share Posted September 4, 2012 For anyone who doubts how quickly resources sector operators swing their investment decisions round if the market changes: http://www.brisbanetimes.com.au/business/mining-and-resources/fortescue-cuts-spending-staff-as-ore-prices-fall-20120904-25bf8.html Again no massive surprise given FMG's gearing. And it's not all doom & gloom, a bit of heat coming out of the "boom" was well overdue I think. But the idea that loads of Capex is somehow "locked in" and will be delivered no matter what the output price of the product, was always silly and this sort of thing emphasises it. When you're dealing with the volumes the resources companies deal with, a few mill dropped on cancellation payouts to contractors is peanuts compared to the bath you might end up taking on the capacity expansion if you end up selling the product at a loss or small margins. So they'll act very very quickly when the conditions dictate They'll act equally quickly when conditions swing the other way, too, particularly if all the environmental/planning approvals are already dealt with The FMG story was always going to happen. There are several fairly large companies that will be making announcements this week. Mt Gibson are only now breaking even and Atlas are now running negative. Some of the Nickel guys are likely to make announcements this week as well. Within the month i am expecting to see lead / zinc start to be in the lay off game. There wont be any escapers if previous downturns are anything to go by as even gold operating on a good price will be affected as the amount of investment money will dry up for everybody pretty quickly. Though i dont think gold will be anywhere near as badly hit as other commodities. Link to comment Share on other sites More sharing options...
northshorepom Posted September 4, 2012 Share Posted September 4, 2012 well the LNG plants still need to be finished off. So i am here for another year or so.. after that.. who knows.. they have just found a load in Mozambique (LNG)... or maybe the DOHA port expansion... or just take a year off and relax and wait for an opportunity..! LNG price is still pretty high as far as I know....so no real drama there. Although the LNG developments are also being hit by cost escalations, plenty of whinging coming from the likes of Shell about that in the past few months From my time in O&G, the "point of no return" on most plants was the point at which major orders were committed for pipe and (especially) mechanical equipment. About 40% of the cost of a typical job was in that and so before you'd placed the big orders you could cancel/postpone/go slow on projects without much worry. Afterwards you may as well carry on, as pumps, pipe & vessels will deteriorate if left in incomplete systems and you're much better off actually finishing the job and getting the systems charged up, and if you've done that you may as well start the plant. Link to comment Share on other sites More sharing options...
derham Posted September 4, 2012 Share Posted September 4, 2012 Can anyone explain what LNG is? Link to comment Share on other sites More sharing options...
northshorepom Posted September 4, 2012 Share Posted September 4, 2012 Liquified Natural Gas It's natural gas, like out of the North Sea.....which is liquified :wink: (Sorry) Yeah, basically that's what it is. In remote places where pipelines to transport the gas aren't going to be economic, you compress it instead and transport in special cryogenic transport boats to market - the market for LNG is mostly power plants. Receiving terminal takes the LNG and decompresses it for use (burning in a turbine to produce electricity) Link to comment Share on other sites More sharing options...
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