Download - Queensland’s resources outlook
Michael Roche
Chief Executive
Queensland’s resources outlook
Galilee Basin Coal and Energy Conference Hilton Hotel, Brisbane 12 November 2012
Today‟s messages
• Days of easy money on the back of high commodity prices are over
• Hard work ahead is growing volumes, boosting productivity, getting costs down and holding onto or growing market share
• Time to get serious about labour market, skilling, infrastructure and taxation reforms
• Tough market globally and will be for some time but signs of prices bottoming
• Confident about long-term growth prospects.
> The Queensland Resources Council (QRC) is a not-for-profit peak industry
association representing the commercial developers of Queensland‟s
minerals and energy resources
> 90 full members – explorers, miners, mineral processors, site contractors,
oil and gas producers, electricity generators
> 178 service members - providers of goods or services to the sector
Who is the Queensland Resources Council?
90
full
members
178
service
members
41
associate
members
Aberdare Collieries
Adani Mining
A.J. Lucas Coal Technologies
Alcyone Resources
Allegiance Coal
Altona Mining
Ambre Energy
Anglo American Exploration
Anglo American Metallurgical Coal
Aquila Resources
Arrow Energy
Bandanna Energy
BHP Billiton Cannington
BHP Billiton Mitsubishi Alliance
Birla Mt. Gordon
Blackwood Corporation
Caledon Coal
Cape Alumina
Cape Flattery Silica Mines
Carabella Resources
Carbon Energy
Carpentaria Gold
Cement Australia
Civil Mining and Construction
Clean Energy Australasia
Clean Global Energy
Coalbank
Cockatoo Coal
CuDeco
Downer EDI Mining
Eagle Downs Coal Management
Ensham Resources
ERM Power
Evolution Mining
Exco Resources
Golding Contractors
Guildford Coal
GVK Hancock Coal
Investigator Resources
Ivanhoe Australia
Jellinbah Resources
Jindal Steel & Power
John Holland
Lagoon Creek Resources
Leighton Contractors
Liberty Resources
Linc Energy
Macmahon Holdings
MacMines Austasia
Mastermyne
Mega Uranium
Metallica Minerals
MetroCoal
Millmerran Power Management
Minerals and Metals Group
Mitsubishi Development
New Hope Group
Norton Gold Fields
Origin Energy
Paladin Resources
Peabody Energy
QCoal
QER
QGC
Rio Tinto Alcan
Rio Tinto Coal Australia
Santos/TOGA
Sibelco Australia
Sojitz Coal Mining
Sonoma Mine Management
Stanmore Coal
Strait Resources
Summit Resources
Superior Coal
Tata Steel Resources Australia
Thiess
Undamine Industries
Vale
Vital Metals
Watpac Civil & Mining
Wesfarmers Resources
Westside Corporation
Whitehaven Coal
Xstrata Coal Australia
Xstrata Copper
Xstrata Zinc Australia
Yancoal Australia
The way it was: Growth Outlook Study – November 2011
QRC commissioned study to provide government/industry with thorough and consistent
understanding of ability of Queensland economy to expand to meet needs of expected
growth in the resources sector.
• 71 companies approached
• 32 companies with qualifying projects (>$300m spend)
Information collected on 66 projects with specific details of:
1. electricity demand
2. water demand
3. labour requirements (construction and operation)
4. capital spend and output
Total capital expenditure of $142b by 2020 if all projects proceed – which of course
was never going to happen
Galilee advanced coal projects*
GVK Alpha Project $6.4 billion Kevin’s Corner $4.2 billion Adani Carmichael $7.1 billion Bandanna South Galilee $4.2 billion Waratah China First $8.1 billion * China Stone – Terms of Reference out for consultation Source: Coordinator-General, Queensland Government November 2011
Qld resource projects balance sheet
November 2012
DEBIT
Norwich Park, Gregory open cut coking coal
mines closed
Shutdown of Blair Athol accelerated
Peak Downs expansion shelved, Red Hill and
Saraji East planning halted
Ensham accelerating open cut wind-down
Several coal company project teams
disbanded or wound back
CREDIT
Caval Ridge & Daunia (BHPB) coking open-
cuts ($4.2b + $1.6b)
Vale‟s Eagle Downs underground coking coal
($1.25b)
GVK-Hancock‟s approvals in for Alpha mine,
rail and port - but go-ahead deferred ($10b)
Grosvenor coal mine (Anglo-American) board
approval ($US1.7b)
$45b CSG-LNG industry contracted and
delivering 2014-15
Incremental expansions by Xstrata Copper,
Xstrata Zinc
Uranium mining go-ahead - projects at least 4
years off
To be advised
Arrow Energy LNG project – decision late 2013
Xstrata Coal Wandoan project – decision due end-2012?
Adani Carmichael project in Galilee Basin – EIS soon?
Other Galilee projects progressing through EIS process
What‟s ailing Queensland resources?
• Global macroeconomic uncertainty – knock-on from Euro debt, patchy US growth, lower
output from China, India – leading to commodity price downturn
• High construction and operating costs compared with global competitors
• Persistently high $AU and $US-written contracts – currency judged against economic
uninspiring performance of others plus relatively high interest rates
• Capital – more attractive global and Aust investment options (e.g. WA iron ore)
• Increasing global competition – 6% coking coal lost to USA during floods unrecovered;
new provinces Mozambique, Mongolia on rise (5x output by 2025)
• Skills shortages, IR rigidities – small pool, unsustainable wage rises
• Australia‟s „sovereign risk‟ reputation – unpredictable tax regimes
Current Qld coal mines uncompetitive
Source: Port
Jackson Partners
(2012), Regaining
our competitive edge
in minerals
resources. Minerals
Council of Australia
– Minerals Week
presentation, 30 May
2012
Current thermal mines already loss-making
12
Source: Analysis by AME Group(2012) for a speech by Mr Peter Johnston,
Chairman, Minerals Council of Australia, Chief Executive Officer and
Managing Director, Minara Resources Limited at MCA Minerals week 2012
Source: Internal workings using forecasts provided by
Macquarie, Credit Suisse, Goldman Sachs, Merryll Lynch,
ANZ, Citigroup, UBS, AME, Wood Mac and CRU
+ 30% company income tax
+ capital replacement costs
(pay back original investment)
+ carbon tax
+ replace depreciated assets
Bracket not proportional to the
aggregate of these costs
Average cash costs $77US/t
Source: Internal workings using forecasts provided by
Macquarie, Credit Suisse, Goldman Sachs, Merrill Lynch,
ANZ, Citigroup, UBS, AME, Wood Mac and CRU
Current coking mines becoming marginal
+ 30% company income tax
+ capital replacement costs
(pay back original investment)
+ carbon tax
+ replace depreciated assets
Bracket not necessarily
proportional to the aggregate
of these costs
Source: Analysis by AME Group(2012) for a speech by Mr Peter Johnston,
Chairman, Minerals Council of Australia, Chief Executive Officer and
Managing Director, Minara Resources Limited at MCA Minerals week 2012
Note - These are premium brand
hard coking prices. Average
prices for semi-hard and
semi-soft brands can be
$20-$40/t less in value
2012 level of cash costs US$107/t
New resource development projects in Qld costly
Source: Port Jackson Partners
(2012), Regaining our
competitive edge in minerals
resources. Minerals Council of
Australia – Minerals Week
presentation, 30 May 2012
Lessons for Galilee Basin
Galilee projects must target first or second quartile costs to be successful
Regulatory complexity must give way to rational planning for growth
Examples – rushed, flawed strategic cropping land law, urban buffer zones, one-size-fits-
all land access rules, out-of-control conditioning of projects, including „wish-list‟ Social
Impact Management Plans (SIMPs)
Under previous govt: Projects conditioned in advance of formal government policies;
environmental, Coordinator-General approvals prescriptive, not risk/outcomes based
Regulatory risk faced by resource projects (but not other economic pillars) has been to
be assessed against regulations at time of decision, not the time of application.
Newman Government can restore confidence
17
Resources Cabinet Committee - opportunity to deliver real change:
• Risk-based Terms of Reference for Environmental Impact Statements (EIS) – focusing
EIS on real risks
• Slashing the number and costs of project conditions
• Returning social impact assessments (SIMP) and conditions to mitigating key direct
impacts – end to „cargo cult‟ mentality
• Already fixing previous flawed, rushed policies (strategic cropping land, on-site dam
standards, offsets policy, handling of mine water discharge)
Industries under attack
> Greenpeace, Lock the Gate, The Australia
Institute et al behind concerted campaign
> Support sought from international foundations
and wealthy Australians
> Government-funded Environmental Defenders
Offices in NSW and Qld foundation contributors
> Objective: Shut down and closure of the coal
industry in the name of climate change
> Strategies: Colonise genuine community groups
and influence concerns, delay coal projects, then
undermine the social licence of the industry;
finally shaking confidence of investment
community to stop growth
Greenpeace targets Galilee Basin projects
> “Cooking the Climate, Wrecking the Reef”
(Sept 12) the latest Greenpeace anti-coal
salvo
> Claims Galilee projects will produce 330 mt
of coal and add to Australian carbon
emissions by 180% (by counting use of our
coal overseas)
> All up Greenpeace claims Queensland will
be exporting 1,056 mt of coal
NGOs exploiting Great Barrier Reef fears
20
• Key to anti-coal movement strategy led by environmental activists: raise spectre of
alarmist coal growth scenarios: coal „super highway‟, >1 billion tonnes of coal exports
by 2020, generating over 11,000 coal ship movements
• Generate community pressure on governments to delay/stop projects
• Industry working with Government in fighting back with comprehensive Cumulative
Impact Assessment, reef-wide shipping study and realistic industry growth and shipping
data. Working closely with state and federal Governments and UNESCO World
Heritage Committee on Strategic Assessments.
• State Ports Strategy: focus growth in existing port precincts
• Fact: took past 13 years to grow coal exports by 71 MT. Greenpeace says it can grow
> x6 in one decade. Federal forecasts says by 2020, coal exports may get to 300-320
MT (depending on what happens in Galilee Basin, Wandoan project)
Reef Wide Shipping impact
assessment (October 2012) Optimistic coal ship number is 4,200 or 37%
of Greenpeace number.
Shipping through reef highly regulated and
monitored.
Management of shipping impacts and risks
extremely well-managed and improving
Forecast ship numbers: minimal risk change
Can do more to ensure vetting quality of ships
and ship crews.
Asian Century – opportunity and challenge 4 billion people in continental Asia Striving to achieve in decades what took centuries for ‘West’ Asia needs energy, steel and metals.
Both new markets and new (cheaper) competitors in the region
Economic contribution of the Queensland resources sector
www.queenslandeconomy.com.au
UPDATE: 29 NOVEMBER 2012
Directly and indirectly 2010-11:
One in every $5 of the state‟s economy
One in every 8 jobs
$20.5 billion in purchases in Qld
($18.8b 2009-10)
$4.7 billion in wages to 40,630 direct
resource workers
2011-12 data to show huge increase in
goods and services spending