Miners must take pay cut to survive

WA’s economy is in a state of flux as its biggest mining companies axe jobs and push up unemployment levels.

Western Australian unemployment rose to 4.9% in May this year, up from only 3.8% this time a year ago. As a result of higher unemployment levels, WA’s workforce has had to adapt and fight for positions in Australia’s mines. Geologists, engineers and OHS staff have had to take a huge pay cut in order to remain competitive when applying for jobs.

On average, job seekers are now asking for $51.60 an hour, down from $59.80 12 months ago.

Recruitment site FIFOBids director Mike Haywood said the data gave an insight to the current transition WA’s economy is experiencing but said it’s not all “doom and gloom” and just a “transition of industry”.

Bankwest chief economist Alan Langford said the move had to be anticipated and the labour market was “always going to come off the boil” which is regularly seen after a boom. However, Manpower Group Australia and New Zealand managing director Lincoln Crawley said that “what makes Australia uncompetitive is unrealistic or artificially raised wage rates” and it has resulted in an “environment of certain uncertainty” were companies are only willing to offer contract or part-time work.

Some argue that the lower wage rates will make other non-mining related jobs more competitive and attractive but there is a downside to the lowering wages. Homeowners and investors with property in rural mining towns have been left with no one to buy or lease properties to.

After BHP (ASX: BHP) pulled many workers out of South and Port Hedland’s private housing communities and into mining work camps because it shelved plans for the development of the harbour, it left local home owners in the shadows. What was once potentially $1,500 per week rental income was now unable to be sold or leased.

John Briggs of Port Hedland Real Estate says that “sales are few and far between” and “anybody who has bought in the last 18 months is in for a torrid time”. The high-risk high-return market place is drying up and with banks demanding about 50% equity for housing in the mining hot spots, mining employees with less money will demand a significantly lower rental rate.

Gavin Hegney, of valuers Hegney Property Group, says the construction phase of mining, which employs the most workers, has clearly subsided. It’s another example in the mining industry of “new supply coming on the market and falling demand”.

Suburbs around Geraldton, which were waiting for the Oakajee Rail and Port project, are saturated with properties for sale. This comes as Oakajee Port and Rail Chief Executive John Langoulant suspended the $6 billion project.

Mr Langoulant says the iron ore price was only one factor in the decision to shelve Oakajee and equity partner Mitsubishi (FTSE: MBC) was being anything but willing to lay out more cash for a project which was now facing lower returns.

Geraldton Mayor Ian Carpenter says the Mid-West iron ore provinces were relying on the development of a deep sea port like OPR to flourish.

Foolish takeaway

With the cost of domestic projects high and return from iron ore expected to reach new lows, it’s no surprise companies like Rio Tinto (ASX: RIO) and Fortescue (ASX: FMG) have axed major projects. Perhaps in a few years, once wages have declined and the price of iron ore returns, we’ll start to see many more projects come online. However, it is estimated that supply of the steelmaking ingredient will exceed demand until 2017, so we are unlikely to see a massive upward trend for at least a couple of years.

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Motley Fool contributor Owen Raszkiewicz has no financial interest in any of the mentioned companies.

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