Regional centres a less risky way to capitalise on mining boom: Countdown to regional centres webinar

Mining towns present the ultimate risk-return conundrum for property investors, as I wrote in my Property Observer column in August.

They’re so hard for property investors to resist. They have the highest capital growth rates in Australia, and they have the highest rental returns.

They also are the riskiest options for property investors. Mining towns are single-industry economies – sometimes single-employer economies – and are vulnerable to downturns in the lone industry.

Over the past 10 years a typical suburb in an Australian city has averaged capital growth around 10% a year (thought certainly not in the past two years). The best suburbs in cities like Brisbane, Melbourne and Perth have averaged 14% or 15% – which is pretty good, because at those growth rates values are doubling every five years.

But the best of the mining towns have capital growth averages double those growth rates. Both Moranbah and Dysart, coal-mining towns in Queensland, have recorded growth in their median house prices averaging more than 30% a year. So too has Newman, deep in the Pilbara region of Western Australia. The median price for Cloncurry in western Queensland rose 60% in the past 12 months.

But the lure of the mining towns doesn’t end there. They also offer the highest rental yields in the nation. Many of them have double-digit rental returns. With the current surge in resources projects, particularly in Western Australia and Queensland, some mining towns can provide initial returns above 15%.

But it’s never plain sailing with mining towns. They lack diversity, so their economic life is a roller coaster. Some also service the surrounding farming economy, but the high levels of prices and rents are based on demand created by the resources sector.

This makes these locations highly vulnerable to downturns in the mining economy. When the global financial crisis struck in 2008, global demand for Australian resources fell. Miners downsized and in some cases shut down mining operations.

In coal-dependent towns like Dysart and Moura in Queensland, residential vacancies rapidly rose from near-zero to double digits. Gladstone, which has had four years of strong growth in house prices, had a 10% decrease in prices in 2009.

The small WA communities of Ravensthorpe and Hopetoun were devastated when BHP Billiton shut down a $2 billion nickel mine that had been completed only months earlier – 1,800 people lost their jobs and property values fell. Hopetoun’s price performance since then has been a decline averaging 6% per year.

More recently, we have seen mining companies refusing to rent properties in Moranbah over concerns about the high levels of house rents and upheaval in nearby Dysart followed the closure of the Norwich Park mine. Neither of these events is terminal to the towns’ investment prospects, but they demonstrate how uncertain property ownership can be in mining towns.

Ultimately, an individual’s attitude to investing in mining towns, or not, depends on their objectives, risk profile and experience as an investor.

It’s important for investors to understand their goals and to have a strategy for achieving them (it’s surprising how many don’t). Equally important is understanding their attitude to risk. If they prioritise safety and low risk, mining towns are not for them.

For anyone starting out as an investor, mining towns are not a good option. They may provide big gains short term, but ultimately values may decrease sharply if a downturn occurs, such as the one that followed the onset of the GFC in 2008.

On the other hand, experienced investors with substantial property portfolios may be happy to accept those risks within the context of a portfolio that has assets in safer locations.

Generally, investors wishing to safely exploit the rise of the resources sector should look at buying in regional centres that benefit from the mining upturn but are not dependent on it.

Regional cities and towns such as Toowoomba and Mackay in Queensland, Geraldton in Western Australia, and Muswellbrook in New South Wales have diverse economies but also prosper when the mining sector is rising. These are safer options than mining towns.

Terry Ryder is the founder of hotspotting.com.au and can be followed on Twitter.

Rio cancels Pilbara accommodation project

Rio Tinto has cancelled its Rocklea Palms Pilbara accommodation expansion project.

The miner originally awarded Diploma the $44 million contract for the FIFO accommodation project in Paraburdoo in July.

However Rio has now advised the contractor that the project will not proceed beyond the building licence documentation phase, and is terminating the entire project on 29 November.

According to Diploma “the project has been deemed ‘non-essential’ in the current expansion program for Rio Tinto and as a result the project has been put on hold indefinitely”.

Despite this Diploma is still required to carry out the work for the submission of the building licence application for the accommodation units, dry mess, and kitchen.

While it has cancelled this project, Rio did confirm that the $49 million contract for the expansion of its Wickham Accommodation project is still going ahead, stating that it “is still very much on foot and is an essential part of Rio Tinto’s expansion plans”.

It is part of Rio’s wider $300 million Wickham expansion.

The Wickham Town Expansion Phase 2 project will create a new Wickham South subdivision and includes 212 new dwellings, 25 residential lots, the installation of 198 new high quality FIFO accommodation units, the construction of a new 1600 metre square town administration and training centre for both the company and community, as well as the new public recreational parks.

Mining services in slowdown

PROJECT cancellations and profit downgrades are mounting as the mining services sector confronts its post-boom future.

In announcements late on Friday, two groups servicing the mining sector said contracts with large mining companies, including Rio Tinto, had been cancelled or were not expected to be renewed, while Orica revealed a $367 million write-down.

Diploma Group said it would not proceed with 244 single rooms for fly-in-fly-out Rio Tinto workers near Tom Price in the Pilbara, while equipment leasing group Emeco said hiring rates in Australia were much lower than expected.

Emeco has been looking offshore, and has shipped a fleet of trucks to Chile, where copper mining is ”robust” and growing.

Orica’s decision to write down the value of its Minova equipment division will slash its profit to $400 million, well down from analyst forecasts of about $650 million for the year. Orica’s results for the year to September 30 are due out on Monday morning, while explosives manufacturer Incitec Pivot releases its results on Tuesday.

The announcements follow the Reserve Bank’s decision of Friday to cut its forecast for Australia’s GDP growth in 2013 to between 2.25 per cent and 3.25 per cent, from between 2.5 per cent and 3.5 per cent.

The RBA said: ”The profile of capital spending on iron ore and coal in 2013 and 2014 has now been revised lower.”

The experience of these companies supports conclusions from Deloitte Access Economics that the peak of the ”construction leg of the mining boom” is now approaching.

”This construction boom is likely to peak in 2014 as fewer projects move through planning over time to replace the large swathe of projects which will be completed,” the firm’s investment monitor for September found.

The total value of projects increased by $6.2 billion, or 0.7 per cent, between June and September, but the value of ”projects in planning” was $10.6 billion lower at the end of September.

”While the quantum of projects in planning had moderated a little over the past year, some of those on the drawing board may be further from the green light now than they were three or six months ago, given the downturn in global commodity prices and concerns over China’s development path in the short term.”

Diploma Group’s $44 million contract to build the rooms for Rio near Tom Price was its first with Rio and was announced in July this year. Just four months later the housing project is now ”non-essential” to Rio’s expansion plans.

Emeco said that only 66 per cent of its equipment in Australia was in use at present, down from 76 per cent in August. This is far below the ”average utilisation of 91 per cent” in the first half of 2011-12.

Specifically, two goldmines in Western Australia did not renew contracts and iron ore miners were unlikely to re-hire equipment until early 2013. Emeco does not expect several coalminers in New South Wales and Queensland to renew their contracts.

In September iron spot ore prices dropped below $US100 a tonne for the first time since 2009, but have since recovered to about $US120 a tonne.

Economics & Beyond chief economist Jeff Oughton said confidence in the mining sector was still low because of uncertainty about what will happen to China’s economic policy when a new leadership team emerges from this week’s National Party Congress in Beijing.

There is also concern about Europe’s economic recovery and how a re-elected Barack Obama will deal with calls for spending cuts and tax increases in the US.

However, putting mining projects on ice does not mean they will not be built.

”This is about new capacity coming on stream and, one, they have been running into lower prices than potentially hoped for; and, two, they are running into higher costs and the availability of skilled workers to get [the projects] done,” Mr Oughton said.

Read more: http://www.smh.com.au/business/mining-services-in-slowdown-20121111-296d3.html#ixzz2ByLT1MUh

Monadelphous Group wins $100 million Caval Ridge mine contract

Australian engineering company Monadelphous Group has won the $100 million contract to construct the coal handling plant for the BHP Billiton Mitsubishi Alliance (BMA) Caval Ridge mine project.

Monadelphous is set for an immediate start and expect to be completed by the end of 2013.

The contract is for the provision of civil, structural, mechanical, piping and electrical works for the coal handling plant, located south-east of Moranbah in Queensland.

Australian Mining reported BHP’s approval of the Caval Ridge project in November 2011, a project with a predicted mine life of more than 60 years producing approximately 5.5 million tonnes of hard coking coal annually.

http://www.miningaustralia.com.au/news/monadelphous-group-wins-$100-million-caval-ridge-m

An email from Moranbah Real Estate

Here’s an update from Moranbah Real Estate on the Moranbah market:

 

Sent: Tuesday, 6 November 2012 1:59 PM
To: Undisclosed-Recipient:;
Subject: Another boom to come?… Don’t miss the boat
Importance: High

Good Afternoon,

The market is certainly looking up in Moranbah with our Rental Department renting 16 properties in the past three weeks, as well as a number of properties going to Contract in our Sales Division.

Most of the tenants who are renting are companies which we believe are moving quickly to lock in leases now before prices increase again in the new year.

The new Residential Estate in Moranbah, Bushlark Grove, which is now available for the open market to purchase, is proving to be very popular with Investors who are confident that the current Buyer’s Market will again experience a surge in rental prices and has a very real likelihood for huge capital growth.

With over $270 billion in the committed capital investment pipeline – including Arrow Engery’s plans in place to build a $20 BILLION export processing facility to liquefy natural gas; Anglo American’s $1.7 billion Grosvenor project (creating over 1000 new jobs); BHP’s $3.4 billion expansions of Hay Point Coal Terminal and Broadmedow Mine and two new mines – Caval Ridge ($4.2 billion) which will need around 2,500 workers by the time it starts mining in 2014 and Daunia ($1.6 billion) which will employ around 1,000 workers during construction and 450 once it starts running in 2013 – it seems that the sky is the limit for Moranbah.

I have pasted some links below which make for interesting reading regarding Moranbah and evidence of the numerous projects that are set to go ahead in our region. I have also attached a list of the properties we currently have for sale for your perusal. I’m investing here – are you?

 

BHP Cites Strong Recovery in 1Q Coal Production
Fox Business
Metallurgical coal output capacity is expected to be 50% higher by the end of calendar 2014, compared with the production rate in the 2012 financial year, when output was 44 million metric tons, BHP said. The company reiterated that coal expansion
See all stories on this topic »

Markets Live: Stocks edge higher
BusinessDay.com.au
10.46am: BHP Billiton said it expects its coking coal production capacity to reach 66 million tonnes a year in 2014, up 50 per cent from its production rate in fiscal 2012, when output was hit by work stoppages. “By end calendar year 2014 the capacity
See all stories on this topic »

 

http://www.perthnow.com.au/realestate/buying/mine-town-property-still-stars/story-fndcyr1w-1226511060798

 

http://www.themorningbulletin.com.au/news/buying-can-be-cheaper-than-rental/1610160/

 

http://www.brisbanetimes.com.au/business/mining-and-resources/confident-arrow-energy-moves-into-coalseam–top-gear-20121020-27y1y.html?fb_action_ids=10151275189250797&fb_action_types=og.recommends&fb_source=aggregation&fb_aggregation_id=288381481237582

 

http://www.abc.net.au/news/2012-10-23/bma-workers-accept-enterprise-agreement/4328648

 

http://au.finance.yahoo.com/news/terms-reference-released-proposed-qld-012535860.html

 

http://www.northernstar.com.au/news/mining-industry-powers-growth-across-central-qld/1601235/?fb_action_ids=10151298393990797&fb_action_types=og.likes&fb_source=aggregation&fb_aggregation_id=288381481237582

 

 

http://www.northernstar.com.au/news/new-500m-coal-mine-could-create-400-jobs/1597495/?fb_action_ids=10151286056695797&fb_action_types=og.likes&fb_source=aggregation&fb_aggregation_id=288381481237582

 

If you have any questions or for further information regarding the new Estate at Bushlark Grove (sizes of blocks, prices etc.), or any of the properties on the attached for sale list, please do not hesitate to contact me.

Buying can be cheaper than renting in mining towns

DESPITE an overall downturn in property prices, Moranbah and Dysart remain two of the top five suburbs in regional Queensland where buying a house is cheaper than renting.

Moranbah topped the list, followed by Blackwater in Fitzroy, Dysart, Miles on the Darling Downs and Kunda Park on the Sunshine Coast.

In August, the Daily Mercury reported that the median weekly rent for a house in Moranbah was $1900.

That price has since dropped to $1500, according to a report by RP Data.

The median weekly rent for a house in Dysart was $1400 in August and this price has also fallen – to $980.

In Australia, Queensland has the highest number of suburbs and towns where it’s cheaper to buy than rent – greater Brisbane accounts for 42 suburbs while the remaining 105 can be found in the regional areas of the state.

Based on principal and interest payments on a variable mortgage rate, the difference between buying and renting a house in Moranbah could save you $2859 a month, and $1253 in Dysart.

But they weren’t the only suburbs in the region where buying could be cheaper than renting.

Buying a unit at the Mackay Harbour could save you $565 a month compared to renting, while buying a unit in Blacks Beach could save you $413.

You could also save $309 on a house in Ooralea and $298 on a unit in East Mackay. Buying a house at Bakers Creek could save you $280 and buying a unit in Eimeo could save you $166.

According to RP Data national research director Tim Lawless, the Australian housing market experienced one of its toughest years during 2011 and the early months of 2012.

“In some suburbs it (buying) may actually be cheaper than renting, especially where we are seeing evidence of tight rental markets resulting in rental increases and lower home values,” Mr Lawless said.

Mine town property still stars

MINING towns still dominate property values with staggering growth of up to 4000 per cent within 10 years.

Queensland’s dusty mining towns of Dysart and Moranbah are among the nation’s top performers for growth in house prices, with medians rising a monster 3992 per cent and 1919 per cent between 2002 and 2012.

Ten years ago, savvy home buyers who bought a house in Dysart for the $11,119 median would now have a property worth $455,000, according to RP Data figures.

Similarly units in towns close to the mining action also recorded phenomenal growth, with Gladstone, Woree and Gladstone City topping the list.

In Gladstone City, the median unit price has jumped a whopping 490 per cent from $73,000 to $430,000.

Western Australia has also recorded stunning property growth in its resources regions. Median house prices have climbed 900 per cent in Baynton in the 10 years, 500 per cent in Port Hedland and 250 per cent in Dampier.

 The nation’s more salubrious digs have chalked up less impressive results. Vaucluse in Sydney, where the median house price is $3.3 million, recorded 55 per cent growth over the same period.

Despite Queensland’s stellar performance in mining regions, RP Data research director Tim Lawless told a real estate masterclass last week that the Brisbane market was underperforming but starting to head in the right direction.

“Transaction volumes remain well below average,” he said.

In other real estate news, property prices across the nation are proving a boon to renters wanting to own their own homes with it now cheaper to buy than lease in a record 388 suburbs across the country.

The RP Data Buy vs Rent report analyses the difference between monthly mortgage payments and monthly rental payments based on the median value of houses and units.

The data shows that there has been a 63 per cent increase in the number of suburbs where it is now cheaper to pay a mortgage than pay a landlord – only 238 suburbs fit the criteria back in August.

For renters wanting to take the plunge, it is great news. For those prepared to pay an extra $50 a month more than their current rents and take a variable home loan, the number of suburbs on offer jumps even further to 1419 suburbs.

Unsurprisingly, across the capital cities, it is typically apartment-style housing where it is more affordable to purchase than commit to the dead money or a rental due to lower property prices.

Queensland offers the majority of suburbs and towns with 147 locations where it is cheaper to buy than rent, although most are located in regional areas including Mackay, the Darling Downs, Gold Coast and Sunshine Coast. Brisbane accounts for 42 suburbs, most of which are located in Logan and Ipswich.

New South Wales has the second highest number of options with 88 suburbs across the state where a mortgage is cheaper than renting. Units in Enmore and Rushcutters Bay are among the surprises.

Mr Lawless said the combination of soft property prices and discounted mortgage rates had combined with high rents and low rental vacancies to cause many renters to make the switch.

“In some suburbs buying may actually be cheaper than renting, especially where we are seeing evidence of tight rental markets resulting in rental increases,” Mr Lawless said.

“For many renters, now may be a good time to either re-enter the market or buy their first home.”

Victoria supported just 17 suburbs where it is now cheaper to buy than rent, although only three of these were close to the Melbourne CBD. The rest were in country towns including Mildura, Bendigo and around the Wimmera.

In South Australia and Western Australia, there were 48 and 44 suburbs and towns respectively, while in Tasmania and the Northern Territory there were 30 and 11.

Macmahon tipped for largest ever contract

PERTH (miningweekly.com) – Iron-ore giant Fortescue Metals has named ASX-listed Macmahon Holdings as the preferred contractor for the expansion of its Christmas Creek mine, in the Pilbara.

If awarded, the five year contract, valued at around A$1.8-billion, would be Macmahon’s largest ever mining contract.

The contract would require Macmahon to operate and maintain the fleet required to deliver opencut mining services at the Christmas Creek mine, with most of the fleet supplied by Fortescue. Work was expected to ramp up to full production by mid-2013.

Macmahon said that mobilization to the site would start under a limited notice to proceed, and added that negotiations regarding the final contract were continuing and would likely be completed by the end of November.