With planned capital expenditure at record levels, persistent strength in mining construction activity shows little sign of abating.
The Australian Industry Group forecasts that construction activity within the mining sector will grow by 12.7% in 2010/11 and by a further 14.3% in 2012, according to the association’s most recent Construction Outlook released last October.
Capital spending is leading the charge. At the end of last October, planned capital expenditure in the minerals and energy sector stood at a record $132.9 billion, according to government research firm Australian Bureau of Agricultural and Resource Economics (ABARE). At this level, investment plans are up a whopping 21% compared with six months earlier in April.
Moreover, strong investment levels will persist in spite of events in Japan, believes Dr. Ed Shann, a director of Prime Value Asset Management. Mining investment will surge by 35% in the current financial year as a result of work on the Gorgon LNG project in Western Australia, he believes. In 2011/12, Dr. Shann sees growth of a further 55% as new projects come on board in Queensland. Whilst events in Japan will slow world growth temporarily, he does not believe it will hamper the industry over the longer term, especially given the likelihood that the Japanese will increasingly favor coal and gas over nuclear energy.
Further underscoring the strength of industry confidence, BHP Billiton on Friday unveiled almost $US10 billion worth of expansion projects across three states.
State by State:
New South Wales
After peaking in 2007/2008, activity in New South Wales has fallen away and conditions are now flat.
According to the most recent report from the Australian Bureau of Statistics (ABS), the value of work done in the September quarter last year amounted to $667.6 million – almost the same as that in the December quarter of 2009 ($672 million).
There few immediate signs of improvement. Whilst there are some major projects in the pipeline, the forward order book is hardly bursting at the seams. In addition to Newcrest’s Cadia gold mine, for which construction started last year, projects on the horizon include Eastern Star Gas’s LNG Newcastle Project and Xstrata’s $1.4 billion Ravensworth North open cut mine. A favorable feasibility study for the former was finalised in January, whilst the latter received board approval in December.
Despite experiencing flat conditions in recent years, Queensland is expected to lead the mining charge, with research firm BIS Shrapnel forecasting a 30% surge in activity over the next two years.
Along with the ongoing boost from Resourcehouse’s China First complex in the Galilee Basin, the sector is expected to benefit from a heavy stream of large projects coming through. These include Australia Pacific LNG’s $35 billion coal seam gas (CSG) to liquefied natural gas (LNG) project, which was given environmental approval last month; the $30 billion Project Iron Boomerang, involving the establishment and linking by rail of iron and steel smelting parks near Queensland’s Abbot Point precinct and Western Australia’s Newman Fortescue River Valley, for which feasibility studies are in progress; and GLNG’s $16 billion LNG project in Gladstone, which received the go-ahead in January.
Work associated with the Gorgon project continues to drive activity in Western Australia.
And there is more to come. As reported in Sourceable earlier this month, the value of projects in the pipeline (including those for which no investment decision has been made) stands at more than $176 billion, according to Department of State publication Significant Resource Projects in Western Australia December 2010.
Apart from Gorgon, these include a $23 billion LNG project from Chevron based on its Wheatstone and Iago gas fields at Ashburton North near Onslow and a $30 billion LNG precinct being developed by the state government to enable processing of natural gas from the offshore Browse Basin. Both projects are currently under consideration.
The good news keeps coming. Around $7.4 billion of the $10 billion which BHP approved for expansion on Friday will flow to Western Australia. This money will go toward the development of Jimblebar mine and rail links, further development of Port Hedland, and port blending facilities and rail yards to enable ore blending.
Levels of mining activity in South Australia are below their peaks experienced prior to the GFC.
At $123.3 million, the value of work done in the September quarter last year has barely changed from that of September 2009 ($123.5 million).
Going forward, the outlook hinges on the approval or otherwise regarding BHP’s proposed five stage expansion of the Olympic Dam copper mine, estimated by Morgan Stanley to be worth around $22 billion. The company lodged its environmental impact statement last December.
Other significant projects under consideration include Hybrid Energy Ltd’s $2.5 billion coal gasification project (“FuturGas Project”) at Kingston and Altona Energy’s $3.5 billion CTL plant located north of Coober Pedy.
After peaking in 2009, activity in fell away last year as work associated with the Kipper gas field and Turrum projects wound down ($1.3 billion and $1.4 billion respectively).
At $199.1 million, the value of work done during the September quarter was less than half its peak of $412 million in the December quarter of 2009.
There are some new projects coming through. In May, Astron Ltd is scheduled to begin construction for its $282 million Donald Sands project. Last December, a scoping study on Jabiru Metals’ Stockman Project, which has an estimated capital expenditure value of $185 million, concluded that the project is “economically and technically robust”.
Nonetheless, these projects are nowhere near large enough to pick up the slack after Kipper and Turrum. Until larger scale projects start coming through, conditions are likely to be subdued.
At just $61.3 million, the value of work done in mining and heavy industry in Tasmania over the course of 2009/10 was well down on previous years ($87 million in 2008/09 and $93.2 million in 2007/08).
In the near term, work is expected to dry up further after completion of BOC’s micro-LNG plant in February.
Longer term, BIS expects activity to pick up in 2012, as higher commodity prices spur a range of minerals projects.
Indeed, there are some signs of activity. A pre-feasibility study is due shortly on Venture Minerals’ $130 million Mount Lindsey project in the north west of the state. Feasibility studies are also in progress for Shree Minerals’ Nelson Bay River Iron Project – the company is believed to be set to apply for approvals early this year.
After a bumper year in 2008/09, which saw activity almost triple to $2.1 billion, the value of work done in 2009/10 dropped back to $704.2 million, according to ABS figures. This is just shy of the $748.1 million worth of work done in 2007/08.
There are a fair number of projects on the horizon. In addition to the $30 billion Project Iron Boomerang referred to above, which will spur activity across the territory as well as Queensland and Western Australia, there is also the $25 million Ichthys LNG Project, the territory’s largest ever oil and gas development. Invitations to tender with regard to that project commenced late last year.
Depending on the outcome of either or both of these projects, along with a number of smaller projects under consideration, the long term outlook appears to be positive.