Billionaire Gina Rinehart has joined the chorus of Australian miners saying it’s not easy to make money in mining despite what many believe.
In her quarterly column in Australian Resources and Investment magazine, Australia’s richest woman said:
“There are too many people outside the industry throughout Australia who believe that once you have a tenement granted to you, all you do is sit back and wait as the money pours in from it – this is far from the reality of things.”
Rinehart said Australia needs to recognise the importance of having “revenue-providing”, competitive export industries such as mining.
“Australian companies cannot succeed in the world markets where we compete against lower cost commodities from lower cost countries,” Rinehart said.
“We need to see costs decrease in Australia in order to remain cost competitive if we wish to see the goose continue to lay its golden eggs.”
There are a few lengthy processes miners go through before they start digging up the dirt and shipping it out to China or elsewhere.
First they have to find the resource, a process which can cost millions in drilling programs and often requires exploration teams to spend months in some of the country’s most remote and harshest corners looking for clues.
Once they’ve pinpointed where the minerals are, mining companies need to figure out whether it’s economical to mine, something which is harder to do in a lower commodity price environment.
The big question: Can the company dig out the resource, pay all the bills, get it to market and make a profit?
Recently the answer to this question for many miners has been no. Which is why projects have been shelved, investment has dropped off and the industry’s focus has turned to getting more out of existing projects, increasing both volumes and efficiencies.
In May the Bureau of Resources and Energy Economics outlined falling exploration expenditure is impacting the number of new projects being announced.
The bureau said the number of projects publicly announced had dropped by 14 to 78 since October 2013.
Prices in the commodity markets are not supporting a case for exploration investment.
On the ASX, there’s a recent trend for technology companies to go for reverse takeover deals with junior miners.
Backdoor listings often signal an economy in transition, allowing growing industries to gain access to funding and providing either returns or an exit strategy to shareholders invested in a company where the prospects may not be as bright.
Before a mine delivers its first tonne there are also a bunch of environmental and mining approval processes, community consultation sessions and investor dealings. There are a lot of boxes which need to be ticked and money that gets poured into the ground before it starts rolling in.
For example Rinehart’s greenfields Roy Hill iron ore project in WA was first scouted back in 1992, several months after her father Lang Hancock passed away.
Today the 55 million tonne per year Pilbara project is still being built but is estimated to cost $10 billion and expected to start shipping late next year.
“We flew to Newman and then drove 120 kilometres to the site that we had identified as possibly being prospective,” Rinehart said. “Fortunately, the original tenement holders’ drill holes were not in the best locations and they had relinquished the tenements.”
Since inheriting Lang’s iron ore empire Rinehart has driven the company through the boom and has on many occasion criticised those who treat the mining sector like an “ATM”.
“Investment is critical for Australia. Without jealousy-inspiring profits, investments of substance do not follow,” she writes.
“The mining industry has a multiplier effect on many related industries, and helps to provide the revenue that our country needs — particularly while in record debt, and in circumstances in which the nation must borrow further to pay its interest bill!”
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