BHP Billiton (ASX: BHP) chief Marius Kloppers has warned that Australia risks missing out on the next generation of mining investment – and all the benefits that would flow from it.
Kloppers particularly highlighted falling productivity and rising costs. Those two factors are making Australia less competitive. The Reserve Bank of Australia recently lowered official cash rates partially on concerns about slowing mining capital investment.
To illustrate the point, the Australian Financial Review (AFR) has suggested that the average time taken for a new project to gain regulatory clearance has hit 3.1 years over the past decade, compared to 1.8 years globally. The AFR has also noted that 3.1 years is regularly being exceeded these days.
While several miners including BHP, Rio Tinto Limited (ASX: RIO), Fortescue Metals Group (ASX: FMG) and Mount Gibson Iron (ASX: MGX) are expanding iron ore volumes in Western Australia, coal miners in Queensland appear to have put the brakes on new projects, thanks to falling commodity prices and rapidly rising costs. Mr Kloppers has suggested that it’s increasingly unlikely that miners will invest more capital in new Queensland coal projects, made worse by the state government’s decision to increase royalties. And that’s despite Queensland having massive resources that could benefit Australia for decades.
He also stated that bulk commodities such as coal and iron ore were seeing falling prices as they revert to long term averages. Kloppers believes that will be the norm in the near future, as China’s demand for raw materials slackens off. Australian bulk commodities producers will need to cut costs and increase productivity to compete in a lower demand environment, as massive supplies come on line.
BHP and RIO are both well positioned as low cost producers, as well as Brazil’s Vale. As prices fall, those miners that have high production costs, lower quality and smaller ore bodies will come under increasing pressure to remain viable.
The Foolish bottom line
We could well see capital investment, originally intended for the development of Australian resources, head offshore to projects in South America and Africa. Australia has the ability to reverse that risk – but it requires governments, both state and federal, to work with our resources companies. Let’s hope we don’t squander that opportunity.
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Motley Fool writer/analyst Mike King owns shares in BHP. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.