Apparently there’s plenty of life left in the mining boom, according to some of Australia’s leading corporate CEOs.
Corporate leaders have questioned Kevin Rudd’s claim that the mining boom is over, saying the economy is set to benefit from the income phase of the boom as higher production of iron ore and liquefied natural gas (LNG) starts to flow through the economy in the next couple of years.
Origin Energy’s (ASX:ORG) Grant King has told The Australian, “It’s not over; most of the capital still has to be spent in order to deliver these big projects”. He added, “In respect to the LNG industry, there’s still at least half to be spent across the industry . . . and when it’s spent it’s turned into revenue and that’s still to come, so the revenue hasn’t even started.”
Origin is involved in the Australia Pacific LNG project being developed in Gladstone alongside partners ConocoPhillips and Sinopec, and due to begin production in 2015. In early August, Origin said the project was 45% complete, and still has some way to go.
Woodside Petroelum’s (ASX:WPL) chief executive, Peter Coleman has also told The Australian, “I think people are taking a pause, I wouldn’t say it’s over.” Mr Coleman says there had been a moderating of investment in resources, after a rush to take advantage of high commodity prices.
Arrium (ASX:ARI) (ex-OneSteel) boss Andrew Roberts said the company, which makes steel products and mines iron ore, was continuing to see strong demand, particularly in the Americas. “It might be that the peak has passed us for a little while but there’s also more capital investment in Australia going forward,” Mr Roberts said.
But mining contractors are suffering from the fallout of cuts to capital expenditure and exploration from big resources companies such as Rio Tinto (ASX:RIO) and BHP Billiton (ASX:BHP). Mining equipment utilisation rates at some companies has dropped from above 70% to low single digits.
Commodity prices were expected to fall away substantially and haven’t, while China continues to import record amounts of iron ore each month. That suggests at least some parts of the resources sector are still going strong, and that Mr Rudd’s view that the mining boom is over is likely wrong.
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Motley Fool writer/analyst Mike King owns shares in BHP and Woodside.
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