Mining industry weary of demands

THE mining industry has called for the end of the cargo cult mentality that led to BHP Billiton paying out about $900 million to meet 1100 conditions imposed on its Caval Ridge coal mine in central Queensland.

The cost of doing business in Queensland is one of the highest priorities for the mining industry which has sacked about 5000 workers this year with another 108 going this week from Sumitomo and Vale’s Isaac Plains coal mine in central Queensland.

But Queensland Resources Council chief executive Michael Roche said the job losses and cost cutting appear to be over for now with a slight rebound in prices for coal and volumes picking up to levels not seen since July last year.

Mr Roche said cost blowouts were often caused by government agencies making demands on projects that were nothing to do with the mine’s impact.

“It got to the stage when a project landed in the Co-ordinator-General’s office the social impact people would call all the agencies and local government to see what they would like the project to contribute to enhance social infrastructure.

“The message from me is those days of a cargo cult where a new project can spend hundreds of millions of dollars of costs for impacts that are nothing to do with it are over.”

Just as Mr Roche was calling an end to the imposition Deputy Premier Jeff Seeney announced another $90 million of infrastructure for Moranbah through the BMA Caval Ridge social impact management plan.

“As the State Government proceeds with its ambitious agenda aimed at getting Queensland back on track, we want to ensure that people reap the rewards from major projects – not just the economic benefits but also through a range of social and community programs,” Mr Seeney said.

The package included $46 million towards the Moranbah Airport upgrade, $19.6 million for local infrastructure support for water, road and airport maintenance, $5 million over five years towards affordable accommodation, up to $5.5 million towards a Regional Youth and Community Services Centre and $2.8 million in programs such as day care.

Central Highlands Mayor Peter McGuire said calling it a cargo cult mentality was “well off the mark”. He said the council had a good relationship with big companies such as Rio Tinto and BHP Billiton’s joint venture, BMA.

Australia reaps benefits of Asian mining bonanza – but not everyone’s a winner

Australia hardly qualifies as the developing world, but there is no doubt that it is booming, with few ill effects from the financial crisis and growth set to top 3% this year.

But the boom comes with pitfalls. The surge in the mining industry in recent years has led to a giddy property bubble which, although good for landlords and homeowners, is not so easy for anyone unconnected with the mineral wealth.

In the tropical Queensland city of Gladstone, seven hours’ drive north of Brisbane, a retired painter, Allan Giles, is completing the sale of another of his investment properties. He is on the right side of the equation. His modest three-bedroom brick-veneer house with a huge garden and picket fence is three blocks from the sea. Eight years ago he paid A$145,000 (£94,000) for the house. It has just sold for A$375,000.

“Much of that growth has been in the past two or three years,” said Giles, who has bought and sold about 20 properties in the Gladstone area over the past 20 years. “Prices were pretty ordinary a while back but what’s driven properties up is the investors who know they can command huge rents. It’s not uncommon for a really ordinary, older, three-bedroom house to bring in A$600 a week in rent.”

The property boom in Gladstone, as in many parts of Queensland, is tied to the state’s natural resources. Prices are in large part being driven up by A$60bn investments in the construction of three liquid natural gas (LNG) processing plants, which will convert coal-seam gas to LNG, ready for shipment to energy-hungry nations in Asia.

Giles’s experience is being repeated in many other places across Queensland where resource projects have brought in an army of workers, driving up prices. Queensland’s biggest resources industry is coal and exports from the state accounted for 20% of global trade in 2009. But the resources revolution is creating losers as well as winners.

Simon Pressley, chief executive of the property-buying agents Propertyology, says few people understand the enormity of the resources revolution in Australia. “In China and underdeveloped Asia there are billions of people living in primitive villages who are moving to brand new cities the size of Sydney or Melbourne that are popping up on a fortnightly basis.

“Australia has some of the biggest reserves of natural resources in the world and will help to build these [new] cities and then provide ongoing demand for energy from coal and gas.”

Australia is now the ninth-largest energy producer in the world. It is the world’s largest exporter of coal and iron ore, the third-largest uranium producer and in future years will be the second-largest LNG exporter, according to the government’s recently released energy white paper.

The International Energy Agency projects that global energy demand will grow by 30% by 2035, with 50% of that growth happening in China and India. It will feed the rapidly growing middle class and by 2030, more than two-thirds of the world’s middle class will live in the Asia-Pacific region (including India), according to the OECD, up from just under one third today. Europe, by contrast, will fall from having about a third of the world’s middle class today to just 14% in 2030.

Australia’s mineral riches are responsible for about 50-60% of the country’s foreign export earnings. In the past decade, coal used to make electricity has jumped from $28 a tonne to more than $100 a tonne, while the price of iron ore has gone up tenfold. The sustained increases have driven investment in resource-rich towns.

In the Bowen basin in central Queensland, home to Australia’s largest coal reserves, at least two smalls towns dependent on mining have seen property values increase by as much as 4,000%. According to Terry Ryder, chief executive of Hotspotting, which advises investors on emerging markets, 10 years ago you could have bought the typical house in a town such as Moranbah (in the Bowen basin) for A$50,000. Now the average house price is more like A$750,000.

“Investors have been attracted to the strong gains and the very high rents they can charge but they are the most volatile markets in Australia,” he said. “If you are prepared to ride out those peaks and troughs you can do very well, but it’s risky. I don’t invest in those sorts of places because I probably wouldn’t get to sleep at night.”

In recent months, job cuts at mines near Moranbah and the softening of commodity prices have seen rental vacancies jump from zero to 6-7% almost overnight, dragging down house prices. Ryder says investors will still probably be able to cover their costs if they drop their rents but they will not get the exponential returns of recent years.

Whatever the long-term security, in the short term, as well as many winners from the resources revolution, there have also been losers. Workers in the mining industry earning as much as A$125,000 a year to drive a lorry can afford to live in areas with a booming property market, but others struggle to keep up with rising prices. Shops, hospitals and schools in many areas have struggled to find staff. The growing fly-in, fly-out workforce, meanwhile, has put extra pressure on local services.

The wealth generated by natural resources has also helped to keep the Australian dollar high, doubling in value against sterling and the US dollar in a decade. This has hurt exporting manufacturers and tourism. Australian interest rates have also stayed higher than in most western economies, with the base rate currently at 3.25% compared with Britain’s historic low rate of 0.5%. The average mortgage holder is paying more than 6% interest. This has affected the cost of living of all Australians paying mortgages, not just in the resource-rich states of Queensland and Western Australia.

Back in Gladstone, Chris Allen, of Gladstone Designer Homes, says he will build about 40 properties this year, mostly to be sold offplan. More than a third of his customers are investors from around the country, some from as far as the gas hubs in Western Australia who have seen the impact the industry has had on their local property markets.

“With what’s happened in Gladstone with the gas and what’s predicted to happen in the future, no one is expecting things to drop any time soon,” he said.

Mine’s $90m boost to town

MORANBAH will be given $90million in infrastructure as the $3.5billion Caval Ridge mine takes shape nearby.

BHP Billiton Mitsubishi Alliance’s funds will upgrade Moranbah Airport, build accommodation villages, improve traffic management and redevelop the township’s aquatic centre.

Other community projects will also be included to benefit from the windfall.

The Queensland Co-ordinator-General approved BMA’s social impact management plan, which it was compelled to provide as part of Caval Ridge’s development.

Acting Premier Jeff Seeney said the programs ensured towns like Moranbah were not punished by major projects in the region. “In this instance, BMA will work with local and regional groups to mitigate potential social impacts and maximise the social benefits of the mine,” he said.

BMA will also build 160 dwellings and upgrade a further 185 in Moranbah.

Beyond its obligations to the Queensland Government, it will also donate $5million to build housing for lower-income workers not in the mining industry.

BMA will be reviewed annually by the Moranbah community to ensure its contributions are worthwhile and necessary.

In June Caval Ridge was described by BMA as being 48% built. Construction is expected to be finished in 2014.

Optimistic Incitec expects a happy new year

EXPLOSIVES and fertiliser maker Incitec Pivot says it is optimistic about this financial year as its $1 billion Moranbah explosives plant in Queensland hits its straps, following a difficult 12 months in which its executives lost their bonuses.

Speaking at the company’s annual general meeting in Melbourne yesterday, new chairman Paul Brasher said he was “cautiously optimistic” about the year ahead. “While we operate in an environment where our customers are impacted by cyclical market factors, we believe our business is well positioned . . . to partner with our customers and help them deliver a better outcome in all market conditions,” Mr Brasher said. “In the longer term, we strongly believe that the industrialisation of China and India will support growth across the company.”

More than 100 miners sacked from Moranbah mine site

A WEEK before Christmas, 108 contract workers at Central Queensland’s Isaac Plains Mine near Moranbah have been told their jobs were gone.

Those given the news on Tuesday will have just weeks before the work disappears.

International contracting firm John Holland was told by the masters of Isaac Plains – Japanese powerhouse Sumitomo and Brazilian mining firm Vale – that the mine would produce less coal in the coming year.

After being given written confirmation, John Holland delivered the news to workers.

Some of those 108 may be re-deployed, either at Isaac Plains or elsewhere, but the spokeswoman for John Holland would not say how many.

She conceded it was “very difficult timing” to announce the cuts so close to Christmas.

“We felt it was preferable to advise affected workers prior to the holidays so they can spend time with their families over Christmas and plan accordingly,” she said.

According to John Holland, workers would be given their full entitlements.

They will also be given counselling and help to find new jobs if they want it.

The news caps off a demoralising year for coal mine workers in Australia, with major multinational mining firms publicly declaring a war on costs.

Falling coal prices – both for energy and metal-making – galvanised companies into cutting contractors and occasionally staff.

In the past 12 months, BHP Billiton Mitsubishi Alliance closed two costly mine projects in the region as Rio Tinto shut down its 30-year-old Blair Athol mine.

An improvement in the export markets is predicted in 2013 but resource giants are keeping their knives sharp as they hunt for ways to save money.

Construction, Forestry, Mining and Energy Union district president Stephen Smyth said owners had made a “knee-jerk decision”.

“Vale and Sumitomo could be doing better by their workforce rather than forcing the sacking of a large swathe of them during the hardest time of the year for miners to find new employment,” Mr Smyth said.

Mr Smyth said the CFMEU would do everything it could to ensure workers were paid the proper entitlements from John Holland.

http://www.themorningbulletin.com.au/news/more-100-miners-sacked-moranbah-mine-site/1688975/

Moranbah Investment Market Update – October 2012

Here’s an update on the Moranbah Property Market dated October 2012 from Hot Property News.

Mining for Cashflow in Moranbah?

Here are some factors to take into account in your due diligence on Moranbah…

1. Moranbah has enjoyed strong 10% yields for a few years now. However, the massive rent spike last year & early this year – when yields went up to 16% and beyond – was caused by one particular company soaking up all available rentals – when those workers got transferred into mining camps the vacancies went up and rent went down. It was never sustainable.

2. Another factor in rents going down was the ‘B.M.A Rental ban’. B.M.A stopped renting out properties for a while, allegedly in an effort to bring rents down. This coincided with lower coal production in the area caused by the industrial dispute (which is still being resolved) and a wetter than usual wet season.

3. While rents were at their peak prices also went up and a lot of locals used that as a time to sell up at a high price and go and live the good life somewhere else! This has also eased pressure on housing.

4. This has resulted in a lot of older houses currently being vacant (around 200) however some agents report that new ones are still renting well – often for a 10% yield.

5. There are lots of new lots coming onto the market – ie. Bush lark estate and also a lot of investor subdivisions (triplexes on large house sized blocks). This means the housing supply/and demand is unlikely to be not be in investors favour for the next year or two.

That said, from an investors perspective, in the long term we believe the future of Moranbah is still strong.

Why? The sheer amount of development in the area will need thousands of workers – both in the mines and supporting the workers in the mines.

For example, Moranbah boasts the following planned or committed projects:

  • The $1.6 Billion B.M.A Dania mine. This is in construction now and expected to being production next year (2013). This will produce 4 Million tonnes of coal per year and employ close to 500 workers.
  • The planned Saraji East Mine. This is expected to produce about 14 Million tonnes per year and be a 25 year project
  • Anglo Moranbah South Expansion. If approved this will produce an amazing 14 Million Tonnes per year making it one of the largest coal mines Australia.
  • Incitec Pivot Ammonium Nitrate Plant – This is a 1 Billion project that has just recently started production in Moranbah
  • Caval Ridge Mine. This will produce about 8 Million tonnes of coal per year and employ approx. 500 workers. It’s an approx. 60 year project. NOTE: This is a FIFO mine, but we still expect there to be some managers etc. who choose to live in the town.
  • Anglo Grosvenor Mine. This project alone will create about 1000 jobs, and have a life time of around 25 years. This will yield 5 Million tonnes per year. Coal production is expected to start next year.

So as you can see there’s a massive amount of projects going on. Why?

The coking coal is Moranbah is used to make steel and is very high quality. Asian countries – like Japan Korea and China – will continue to need steel to build houses and cities as 100’s of millions of their citizen’s move to a better standard of living.

And even at today’s lower prices Coking coal is still a very profitable business – that’s why these major companies are investing billions in it.

So ultimately the product the town creates is in high demand.

And there is 100 years or more of supply so the town has a strong future in that respect.

And, it’s all these new projects that make us believe the long term population is set to grow rapidly over the next few years.

That’s why you’ve recently seeing McDonalds move to town – which my understanding is usually only goes into towns with approx. double the size of Moranbah (around 16,000).

This future potential population growth is represented in the table below…
In the ‘medium estimate’ the expected resident population of Moranbah will go from around 8980 people in in 2011 to 12,310 in 2018.

That’s a rise of 3330 people. A very steep rise for a relatively small town.

And, on the high estimate we could see another 3940 residents in the town by 2018. That’s a nearly 50% increase by 2018.

So even with all the new houses being built it seems likely there will be some degree of housing scarcity keeping prices and rents up.

Population Projections from Queensland Treasury and Trade

This works in our favour as investors. Particularly as the new houses being built are on one of Moranbah’s last available bits of developable land.

That’s because the town is basically ‘landlocked’ by mining leases.

In saying all this, it’s important to note there are factors that could pose a risk to the town as well. For example, competition from countries with cheaper productions costs of Coking coal. So I am keeping an eye on demand for Coking coal as well.

So what should investors do?

We suggest investors do careful due diligence and research before choosing to invest there in today’s market. And if they do choose to invest we suggest they make sure they have a ‘financial buffer’ in place in case of vacancies.

Also, if you choose to invest you should consider buying a new house because now the market is more competitive new homes are renting more easily.

Or if you are buying an older style home make sure you will be able to put new dwellings on it. Check with Isaac council about their conditions around this.

From my own perspective, I am waiting till vacancies get much lower – around 1% – or so before making my next move in the Moranbah market because I want to see how the situation develops.

I expect that to happen by 2014- 2015 once the new levels of production caused by all the new projects comes into effect.

BASIC SUMMARY:

Moranbah, has strong projected population growth projected due to the many billions of dollars of development in the area. The average income in the area is much higher than the national average. Both of these factors work in investors favours for healthy yields & growth in the future.

The product the town produces is in strong demand. However due to the large amount of vacancies and new developments in the area it could be wise to hold tight till vacancies goes down and the town settles into a more favourable supply and demand situation for investors.

Our understanding is some investors are still getting 10% yields on new townhouses etc. right now and this could potentially continue for many years due to the future population growth of Moranbah combined with land supply

So, in our view is magic of Moranbah is still need not ‘dead’ for investors. One needs to be careful and due strong due diligence before investing.