Did South Australia miss the mining boom?October 4, 2013 / By
The mining boom was officially pronounced dead by then Prime Minister Kevin Rudd during the leader’s debate in the lead up to our recent Federal election. Since its demise, South Australia has been in a state of mourning, due largely to the postponement of the Olympic Dam expansion and perception that we have missed the boom. But here is the problem. Sales of Australian commodities are at record levels and rising. The unprecedented capital investment over the past decade is beginning to bear fruit as mines transition from the development phase to full scale production. The mining boom is not dead, it is just growing up.
So what are the implications for South Australia? Compared with Western Australia and Queensland, South Australia’s mining industry is in its infancy. Whilst South Australia contains some significant mineral and petroleum deposits, even by world standards, in many cases these deposits are still at the exploration phase. Large expansions in export capacity, particularly in iron ore and liquid natural gas in Western Australia, mean any future South Australian development of these resources will be entering a market which has seen significant increases in supply. If capital investment has peaked then indeed South Australia has, for the time being, missed a short term opportunity.
But mining is not a short term proposition. The expansion of Olympic Dam was to take 12 years before it reached full production. So whilst commodities have recently seen increased supply and falling prices, and mining capital expenditure has fallen in response, the picture 12 years from now will be very different. Furthermore, the production phase will last decades, and through that time demand will rise and fall. The recent volatility in commodity prices is testament to this.
Some say South Australia has dodged a bullet by leaving our resources in the ground whilst the rest of Australia scrambled to dig theirs up. We did not enter a market at the same time as supply was rapidly increasing, and we did not enter a market in the aftermath of the GFC. The recent trouble facing the LNG long term supply contracts is the perfect example of this, with Western Australian suppliers facing strong pricing pressure and competition from US LNG suppliers.
Olympic Dam alone is the world’s fourth largest copper deposit and the world’s largest uranium deposit. South Australia is a small or, as I prefer to think of it, a “boutique” economy. In this context South Australia has an embarrassment of riches that will, at some stage in the future, be a significant and long term driver of economic growth.
A little over 12 months ago Jones Lang LaSalle produced research which forecast a 35% increase on base office demand, and an additional 75,000 sqm of net office absorption as a direct result of the Olympic Dam expansion. This demand, whilst on hold for the time being, will at some stage hit the Adelaide market.
So did SA miss the mining boom? Well firstly, the mining boom is not over, it is just transitioning, and secondly, mining is a very long term proposition. South Australia has good reason to be optimistic about the future of mining in our state and the economic benefits that will follow. but it is important to remember that these benefits will come over the next few decades, not the next few years.
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