Confidence in a booming sector was on show for all to see at last week’s Diggers and Dealers conference in Kalgoorlie, as Sharon Kemp reports
Western Australia’s annual resources production will rise significantly within three years, by 84 million tonnes of iron ore, 102,000 tonnes of nickel and 1.2 million ounces of gold.
Yet these estimates only account for the planned production expansions contained in presentations at the Diggers and Dealers conference in Kalgoorlie last week. There is also an oil and gas production boom, and Rio Tinto’s plans for its Pilbara iron ore operations.
Last week, the plan makers acknowledged the greater part of their work had been to account for expected labour shortages and rising costs of materials associated with WA’s resources boom, which had forced them to repeatedly revise estimated capex figures for projects.
But such was the confidence permeating through Diggers and Dealers this year, one delegate compared the atmosphere to the assurance and poise demonstrated in WA’s mining industry in the late 1980s and early 1990s.
“Australia was just entering a new phase of growth in gold production at the time,” Eagle Mining Research analyst Keith Goode said.
“It is happening again in Australia, this time for all commodities.
“People say that commodity prices will come off in two years or so. I say they should go to China.”
And so the magic word – China – is conjured. China, a country where the provincial population is moving to the country’s coastal strip at such a rate that a city the size of Melbourne needs to be built every year, according to Mr Goode.
He said the coastal strip of China extended 200 kilometres inland. Under the same scenario in WA, Kellerberrin would be considered coastal.
Growth of the sort Mr Goode describes requires a supply of energy and materials world miners cannot keep up with, and has led to skyrocketing prices for iron ore, nickel, copper, coal, oil and gas.
Simultaneously, and perhaps coincidentally, gold has also surged. Its relationship with the US dollar and that country’s current account deficit accounts for its prosperity.
“For 40 years prior to June 2003, the conventional wisdom held that gold prices and base metal prices were countercyclical; that is, if gold was up, base metal prices were down, and vice versa,” Diggers and Dealers chairman Brian Hurley said.
“These days, the gold price is oscillating around the $US420 mark and we are quite blasé about it.
“Over the last couple of months, the copper price has been regularly sitting at or above $US1.50 per pound, while nickel fluctuates between $US6.50 and something over $US7 per pound.
“I’ve just used copper and nickel as an example of the change in fortunes of base metals – the same sort of change has occurred for aluminium, tin, lead, zinc, iron ore, coal and probably anything else you care to nominate.
“[And] among others, Macquarie Bank stated in mid July this year that it sees the potential for a prolonged period of better metals prices over the next five years and beyond resulting in it upgrading the prices for almost all of its long-term forecasts covering base metals and bulk commodities.
“While I find it difficult to accept the $US850 per ounce suggestion in the short term, a healthy gold price going forward doesn’t seem unreasonable.”
While everyone who makes their living from mining watches in wonder the simultaneous fortunes of all WA’s natural resources, not everyone believes it will last at current levels.
Aztec Resources managing director Ian Burston said the company’s production model for Koolan Island had included the assumption of a 15 per cent price fall for iron ore in the next three years. The company is planning production of 4mt a year of iron ore from next year.
Likewise LionOre Mining International, which wants to double nickel production to 80,000t a year in WA and Africa within three years, but is not assuming current nickel prices will remain as high as they are.
Newcrest Mining, which will add 800,000 ounces of gold and 55,000t of copper to its annual production next year after commissioning the Telfer project in the Pilbara, believes in a gold hedging policy that will allow it to capture the benefit of high copper prices at no cost at all.
Troy Resources will add 100,000 ounces to WA gold production next year from its newly opened Lords mines near Sandstone.
Placer Dome Asia Pacific has just brought on line the Raleigh gold project west of Kalgoorlie from which it will pour an additional 90,000 ounces a year for the next six years.
Additional gold ounces in WA in the next three years will also come from Avoca Resources at Higginsville, Perilya at the high grade Daisy-Milano project, and Tectonic Resources near Ravensthorpe.
Fortescue Metals Group has plans to add to WA’s iron ore output by 45mt a year by 2008, and BHP Billiton is studying the production of a further another 35mt a year.
Western Areas and Consolidated Minerals are planning additional nickel production.
All claim they are assuming conservative prices for commodities going forward and into production.
