Politics & Government Is the end of the mining boom around the corner?

Miqar_Baqfhied

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Just be having a few discussions with some mates lately who reckon that the mining boom is going to end soon. Basically, the massive wages being demanded by Australian workers and the huge operating costs are being passed on to the consumers (i.e China), and this is getting too expensive for them.

China are apparently stockpiling huge amounts of ore while they wait for projects to be set up in African and Asian countries, where it will be much cheaper to mine minerals (wages, operating costs). Plus they are setting up employment oppurtunities for local workers in these countries so they reap rewards too. They are set to pull the plug on taking ore from Australia, using up these stockpiles while they wait for the African/Asian projects to commence.

Has Australia been too greedy and demanding (TA's demanding 150k plus to push a broom for example), and are we set to crash and burn as a result?
 

Hap Hapablap

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the problem for australia is the growing economies of africa and south america in particular brazil. brazil has a mammoth amount of ore and could sell it cheaper to the chinese (although freight may be an issue due to the distance). nevertheless i reckon australia really has missed out on the boom. should have tried to develop the ore into material here however of course overheads and wages would pump our prices ridiculously high (why offshore is very fashionable atm).

i would not be surprised if the boom came to a halt. and if it did australia would crash to probably the same level as europe and the US. the ore is saving us. that is it.
 

JuddsABlue

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the greed of the current Australian worker will ensure whatever industry they are in will run dry within a certain timeframe

add that with the countrys huge business taxes/super etc it seems nealy impossible to run a business in Australia anymore
 

Miqar_Baqfhied

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the greed of the current Australian worker will ensure whatever industry they are in will run dry within a certain timeframe

add that with the countrys huge business taxes/super etc it seems nealy impossible to run a business in Australia anymore

Plus the skills shortage and Australian public being so against overseas workers doesnt help things.

The amount of beurocracy and red tape companies/ businesses and contractors need to cut through is ridiculous too.

I also think our industrial and employment relations laws and the influence of unions also doesnt help. They strangle employers to death.

Not sure whats going to happen to all the cashed up and relatively unskilled FIFO workers with massive houses and debts when they lose their jobs.
 

Ktrain

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Plus the skills shortage and Australian public being so against overseas workers doesnt help things.

The amount of beurocracy and red tape companies/ businesses and contractors need to cut through is ridiculous too.

I also think our industrial and employment relations laws and the influence of unions also doesnt help. They strangle employers to death.

Not sure whats going to happen to all the cashed up and relatively unskilled FIFO workers with massive houses and debts when they lose their jobs.

Maybe they can continue doing the same job for a poultry $100k instead of $150k.

Any resources project requires lots of capital & certainty. Clearly Australia has relatively low sovereign risk, therefore we just need to become more efficient/competitive.
 

Tex_21

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Thread needs more Tex_21
Hi guyths.

MB - I think you've got a point that the boom may slow (I doubt it will fully end, but it may slow), but that your reasoning as to why Chinese demand in particular might cool is wrong. The Chinese buy our minerals mostly in the open market (using short term contracts, but at market price), and those prices are at, or near, record highs as a result of the demand from the BRICs (chiefly China and India, as Brazil and Russia are pretty resource rich in their own right, though Russia is splurging the benefits of this, and requires an oil price somewhere around $110/barrel to balance its budget). This high price (particularly of iron ore) is in effect, the boom - it's why Australia has the best terms of trade in recorded history (well, slightly off the peak now, but still very close), which is inducing the huge amount of investment in Australia, which has something in the vicinity of $150bn of planned projects in the pipeline IIRC. Obviously, if the demand for those commodities that Australia exports most (iron ore, coal and education - which is already falling due to concerns in India) falls, this will reduce investment here, and the 'boom' will slow.

The real issue is how well China is performing, and there are a few signs of a slow-down. Some (Roubini in particular) have predicted a 'hard-landing', based on over-investment in infrastructure and very high levels of municipal debt in China, that could possibly go bad at an alarming rate (this is just starting to come through). The issue of over-investment is a bigger problem IMO, as the debt is implicitly guaranteed by the government, and in a worst-case scenario will be bailed out/extended. THe investment in roads, rail etc in China has been running at huge levels, relative to GDP, that are not sustainable in the long term, and the projects have got so far ahead of what the Chinese consumer can actually afford that more recent projects (best example is continued super-fast rail) are being undertaken, even when they are quite poor from a long run return perspective. If China is able to 'rebalance' their economy toward greater domestic consumption, whilst reducing their levels of investment to a more sustainable point, the slowdown should be relatively benign, and the mining boom here should only slow relatively gradually. However, if this is not addressed, and it ends in a big bubble bursting (kind of analogous to the housing bust in Ireland or Spain, though not as severe), the demand for our resources, and hence their prices, may fall off a cliff.

I personally think its more likely that a softer landing will happen, and Australia will have some negative impact of that, but it wil be reasonably gradual, and allow us to adjust (in theory, though that assumes quite a bit of our political and business leaders). I've ignored India, because they are also having some issues, and then there are Dutch Disease concerns (compounded by central bank purchases of AUD) and other related issues, like the possible expansion of the Future Fund, or creation of a new SWF.

Doubt there will be a 'crash and burn', but we may have seen the absolute peak in our terms of trade for a while.
 

MarcusP2

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Well, in the fact that my company (an engineering consultancy) just laid off tens of people after years of fast growth because BHP pulled back on a shedload of iron ore projects, yes it's in a down period.
 

Tex_21

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Define mining boom?

GFC and government is being stingy. That's not a boom.
There is indisputably a huge boom (biggest we've ever seen) going on in the resources sector in Australia. Terms of trade at record levels, huge investment in the pipeline etc. The issues I think you're alluding to relate to the two-speed economy and the effects of the Dutch Disease that result from the massive inflows of investment to Australia, causing the AUD to appreciate, hurting the competitiveness of the trade-exposed sectors in the economy, such as manufacturing.
 

Tex_21

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The mining boom has not translated to the wider economy then.

Not particularly well, no. I'd still argue overall it has been a good thing for Australia.

I blame the government for the mining tax, lets cash in a boom that already happened.

It's over because the demand from Asia is slowing.

So which is it? Mining tax or reduced demand? I don't think it's 'over', but we've probably seen the peak for a while at least. It's still the driving force in the economy, and will remain so for some time.
 
Reduced demand is coming because of the mining tax.

I'm not saying we should give our resources away, I'm saying that as long as the mining corps. are employing Aussies that the benefit to us is great enough that we don't need it.

This government is transparent in their Robin Hood style policy of stealing from the rich north west / far north QLD and giving to the poor south east.
 

Miqar_Baqfhied

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Not particularly well, no. I'd still argue overall it has been a good thing for Australia.



So which is it? Mining tax or reduced demand? I don't think it's 'over', but we've probably seen the peak for a while at least. It's still the driving force in the economy, and will remain so for some time.

Tex is the mining tax that bad? As bad as what the media and the liberals are trying to make out? I heard the government takes much more money from cigarettes and alcohol tax.
 

Tex_21

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Reduced demand is coming because of the mining tax.

Not really, the demand for resources is coming from outside Australia mostly, that has almost nothing to do with the tax, which is a supply-side issue.

I'm not saying we should give our resources away, I'm saying that as long as the mining corps. are employing Aussies that the benefit to us is great enough that we don't need it.

This government is transparent in their Robin Hood style policy of stealing from the rich north west / far north QLD and giving to the poor south east.

GST re-distribution? Even so, I agree that the government is taking from the wealthier areas and giving to those that are struggling (Tassie has been a recipient for as long as anyone cares to remember), but that's the nature of a fiscal union. If you wanted to stop that completely, we could have something like Europe - monetary union without fiscal union. Seems to work well.

Tex is the mining tax that bad? As bad as what the media and the liberals are trying to make out? I heard the government takes much more money from cigarettes and alcohol tax.
I don't think its that bad (ignoring the constitutional issues with resources, because that's law, not eco), certainly would have some effect on marginal projects, but I think that effect would be pretty small with a 30% rate on profits over the prescribed rate. Personally, I'd have set up a tax that is connected to the terms of trade/index of commodity prices so when gains are made through an appreciation in price, the govt gets a greater share, but when gains are made through efficiency measures the firm keeps them. I'd also funnel the proceeds to a SWF, investing abroad to mitigate Dutch Disease issues.
 

Cricket444

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Not really, the demand for resources is coming from outside Australia mostly, that has almost nothing to do with the tax, which is a supply-side issue.



GST re-distribution? Even so, I agree that the government is taking from the wealthier areas and giving to those that are struggling (Tassie has been a recipient for as long as anyone cares to remember), but that's the nature of a fiscal union. If you wanted to stop that completely, we could have something like Europe - monetary union without fiscal union. Seems to work well.


I don't think its that bad (ignoring the constitutional issues with resources, because that's law, not eco), certainly would have some effect on marginal projects, but I think that effect would be pretty small with a 30% rate on profits over the prescribed rate. Personally, I'd have set up a tax that is connected to the terms of trade/index of commodity prices so when gains are made through an appreciation in price, the govt gets a greater share, but when gains are made through efficiency measures the firm keeps them. I'd also funnel the proceeds to a SWF, investing abroad to mitigate Dutch Disease issues.

Mate why are you on bigfooty when you should at least be doing Abbotts job?
 
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I think talking about the “demands” re mining wages is a little misleading.

No cleaner or cook ever literally demanded $150k to work in mining. Australia has very generous labour laws, but not that generous!

The wages are at that level because that’s the market – they have to offer that to get people to go to the middle of nowhere for weeks on end. Supply and demand of labour.

It’s shitload of money but a s**t, s**t life. The $ look great but reality is not many people are willing to do it long-term, especially anybody with a family.

The boom will end when the demand for the stuff ends. End of story. Labour prices of the mine crews is an absolute drop in the ocean for these projects - it’ll never make a lick of difference one way or the other whether a projects stops, starts or goes ahead. It’s all about China’s economy, not our’s.
 

Ktrain

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It’s shitload of money but a s**t, s**t life. The $ look great but reality is not many people are willing to do it long-term, especially anybody with a family.

People don't flock to where the money is anymore ala the gold rush. And then at the same time complain about foreign workers. I dont pretend to say its easy to uproot, but there are choices & opportunities to cash in so take it while you can.

And living overseas for a while now, AUS society in general doesn't seem to shame the industry into local content. Whereas Europeans/North Americans will make their points loudly, our resource boom wastage seems to be more of an out of sight out of mind issue.
 
The problem with your position is that is wholly unsupported by the facts.

If there is no mining, just exploration and development, which does not result in $$$ for mining companies.... why then does the graph show that mining companies were paying large amounts of tax.

Sure, there is a large uptick in mining royalties but there is really a simple explanation for it, the iron ore price went from $20 to $150. That is not to say that some of the uptick wasn't an increase as a result of volume, rather than price.

The entire purpose of the proposed mining tax was for the govt and the people of Australia to get a share of the mining boom. If you're keen you can go read Ken Henry's exegesis of the why's and wherefore's of what a MRRT could achieve for our country.

The MRRT was proposed because, as you say, mining companies were at the point where they could really ramp up volumes and thereby create super profits. Volume + sky high prices = super profits.

That doesn't mean we weren't in a mining boom before, it simply means that the boom was about to get bigger. It was about to get bigger because smaller mining companies were ready to rock and roll and the larger mining companies were ready to ramp up production.

There is no point reading Ken Henry's whys and wherefores re the need for a mining tax as the super profits tax and the MRRT were not the tax he proposed.

Like Ken, I'm a big advocate of a better tax for the mining industry especially for coking coal, thermal coal and iron ore. The mining tax proposed by Rudd would have bankrupted Australia in the down turn as the design meant the government shared losses. This would have allowed Chinese companies to operate at a manufactured loss through transfer pricing (of expenses and revenue alike) then flush back through in equity and recycle. The MRRT as you know was a failed design as it favoured big companies over small as well as favouring foreign ownership over Australian investment.

re timing of the boom, the graphs are clear

421072_9b0ed29a4474534d52e33f6d2da966c4.png


The tax graph below marries the above

Figure%202%20-%20Net%20income%20company%20tax%20payable%20by%20industry.gif


make sure you are looking at the light grey area
 
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probably
Solid OP

Hey PR - not sue I follow, are you saying the RSPT would have hurt, but that the renegotiated MRRT post-ALP spill #1 - which the MCA effectively designed - went too far the other way, in favour of the miners?

If so, could you speculate on the hypothetical result of something in between?

Be sure to include a few dick jokes to maintain my interest. Correct use of paragraphs might be a bonus also
 
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The boom ended years ago, but mining in WA is actually on the up. OP is from 2012, last I checked we're not far off 2018. That's a long time in mining.

BHP are spending squillions (https://gateway.icn.org.au/project/3905/bhp-south-flank-iron-ore-project) but it's not reflective of a new boom or them being ahead of the game (ahahahaha ahahaha ahahaha, sorry) but it's about maintaining production. Mining deposits have expiry dates. The boom phase of the mid 2000s was about raising iron ore production levels. Ongoing work is about maintaining those levels.

The problem with big companies like this is that it's you can never completely flatten out the boom/bust cycle. A a mine will have a 20-30 year mine life and when you bring the next one online there will be a spike in construction activities.
 
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