Optimism returning as industry picks up pace

It has been a big 12 months for the Western Australian mining sector.

Some are reluctant to call it a return to boom times, but there is certainly excitement in the air around a number of burgeoning projects.

Investment in lithium has reached record levels as companies scramble to take advantage of the rising demand for battery metals in China. There are seven lithium mines now operational in WA and a number of processing plants planned or already being built.

The ‘big three’ miners – BHP Billiton, Rio Tinto and Fortescue Metals – are back in the construction game after pouring more than $9.7 billion into the Pilbara, confirming the region’s status as the world’s premier iron ore supplier for the foreseeable future.

And while this investment is nowhere near the lofty heights of the previous resources boom, optimism in the industry has returned after a tough period in the state’s history.

Dark days give way to bright future

Since the end of the last mining-construction boom in 2012-13, the middle part of this decade has been a di cult time for the WA economy, but economists and the government predict the worst is over.

Gross state product (GSP) is one of the main statistics used to measure the strength of a state’s finances and after reaching a low of -1.8 per cent in 2016-17, the most recent budget forecasts real GSP growth of 3.25 per cent in 2018-19.

In his 2018-19 State Budget speech, Treasurer Ben Wyatt said the WA economy was estimated to grow by 2.5 per cent in 2017-18 and a further 3.25 per cent in 2018-19.

With the mining sector accounting for 30 per cent of GSP in 2017-18, Chamber of Commerce and Industry WA Chief Economist Rick Newnham said the minerals sector would continue to drive recovery.

“Iron ore has a bright future and will for decades to come,” he said. “Lithium is the new ‘big game’ on the scene and is an opportunity for the state.”

Mr Newnham said a CCI business report showed business confidence was at a five-year high.

“Businesses are feeling more con dent about the future than they have in five years and that is a very positive early indicator for business investment and employment growth,” he said.

WA is also set to be boosted by the new GST deal, with the long-awaited change unanimously passing the Federal Senate in November. The reform is expected to deliver the state an extra $2.7 billion over the next decade.

“The GST is hugely important to the future of WA because it will no longer be punished for developing its own natural resources,” Mr Newnham said.

“This is hugely important because WA accounts for 40 per cent of the nation’s exports, so when WA does well the rest of Australia does well.”

Despite an economic recovery, the McGowan Government was left with a whopping state debt when it took office last year – one that is expected to peak at $40.9 billion by June 30, 2020.

Deloitte Access Economics Associate Director James Campbell-Sloan said it was important for the government to pay this debt down so it could handle unexpected shocks to the economy.

“As we just experienced, if you have quite a deep recession it risks causing permanent problems – your skills base might deteriorate, people can leave the state and not come back,” he said.

Mr Campbell-Sloan said the government had to be able to step in and prop up the state’s finances when additional spending was needed.

“It makes it a lot easier to do that if you have managed your finances well and you haven’t racked up a lot of debt and are running fiscal deficits,” he said.

“It means you can step in with confidence as you have a lot more ammunition and you won’t have to worry as much about what happens afterwards. It’s quite a challenge though. When you have big booms spending out is tempting.”

To make better use of an uptick in mining activity this time round, Mr Newnham said WA had to keep a lid on its expenses.

He said one of the biggest challenges during a mining boom was dealing with what economists called ‘Dutch Disease’. 

“It’s a syndrome in the economy where one sector does incredibly well and is able to pay much higher wages than other sectors are able to,” he said.

“That then sucks the life out of other industries and makes it very di cult for those industries to compete and do well.

“The State Government went through a period of this during the last boom and that’s why they were forced to put up wages, leaving them with a very hefty wages bill and a big debt.”

According to economists, another litmus test for a prospering economy is population growth. WA has fared poorly in this area over the past five years. Sharply declining since 2012, population growth fell from three per cent to 0.6 per cent by 2016. In 2012, net overseas migration reached a high of 49,965 but decreased to 13,436 by 2017.

The numbers are recovering though, and population growth is forecast to rise to 1.2 per cent in 2018-19.

Mr Campbell-Sloan said a pick-up in demand for labour would see a greater number of people from overseas moving to WA instead of to the eastern states.

“We are still shaking off the hangover of the largest investment boom in a generation and the other states didn’t enjoy that,” he said.

“At the peak of the boom unemployment was 3.6 per cent and it even hit 2.3 per cent. That low level of unemployment is the thing that really drives wage growth and inward population.”

A jobs bonanza

There were some headline-grabbing figures that likely prompted more than a few double-takes when released in September, given the subdued rhetoric around mining and resources the last few years.

More than 112,000 people – 112,008 to be exact – were directly employed in Western Australia’s mining and resources sector in the 2017-18 financial year. This is more than at any other time in the state’s history and that number should only continue to increase in 2019 as more and more construction and operational jobs become available.

In the Pilbara, billions have been committed by major miners to project developments and expansions likely to drive global iron ore production over the next decade.

Last month, Rio Tinto gave the green light to its US$3.5 billion ($4.7 billion) Koodaideri iron ore project, which will provide more than 2000 jobs during construction and another 600 in operation.

Joint venture partners BHP, ITOCHU Minerals Energy of Australia and Mitsui & Co announced earlier this year they had committed US$3.4 billion ($4.8 billion) to the development of the South Flank iron ore project by 2021.

The project is expected to create 2500 jobs in construction and 600 ongoing operational jobs.

Fortescue Metals Group committed US$1.275 billion ($1.77 billion) to the development of its Eliwana iron ore project, with a first ore target of December 2020. The project will require 1900 sta  during construction and add 500 ongoing operational jobs to the market.

Rio, with Mitsui & Co and Nippon Steel & Sumitomo Metal, has also committed US$1.55 billion ($2.1 billion) to the Robe River and West Angelas expansion project which will create 1200 jobs during construction.

Then there’s the booming lithium processing space. Environmental approval of Albemarle Corporation’s plans to build a $1 billion lithium hydroxide plant at Kemerton to process ore from its joint venture Greenbushes mine made front page news in November. Pending final approvals, this will mean 500 construction jobs, with a further 500 operational roles once the plant begins to operate.

Tianqi Lithium Australia, Albemarle’s JV partner at Greenbushes, is already in the process of building a $700 million plant at Kwinana.

These projects alone highlight the workforce opportunities about to land in the mining and resources space, but they could also create challenges as so many come into development at the same time.

Hays National Director Resources and Mining Chris Kent said he expected Western Australia to have difficulty attracting the required talent as construction levels increased over the years.

“There already is a skill shortage now and we are having a lot of trouble finding them for the existing operations, let alone the expansions,” he said.

“Anything that’s transferable between construction trades and mining is going to be highly competitive. For the mining-specific roles there is still a shortage of skills for fitters, boilermakers and electricians.”

Mr Kent said while projects in the South West might not have trouble finding workers, it was much harder to sell working up north. He said streamlined visas for overseas workers could be the answer.

“I believe Kalgoorlie as a region is lobbying the Federal Government to get a special visa for that region, which is mooted as a thousand-odd jobs in the Kalgoorlie Goldfields,” he said.

“I’ve got no doubt if they are successful then the Pilbara would be pretty keen to get involved as well.

“It’s inevitable there will be some visa requests; whether or not they are accepted and get through the government is a whole other equation.”

Although wages growth in WA is expected to get closer to the national average over the next two financial years, there is consensus mining workers will not be paid the same inflated salaries as during the last boom.

“Our state needs stability with wage increases,” Inverse Energy Mining and Infrastructure Director Mark Pearce said.

“It’s not about paying people wages as high as the last boom. Employers should also be mindful there are other means of retaining their best employees and contractors besides wage increases.”

Mr Pearce said meaningful, long-term work where employees and contractors could build their skills and experience should be as important as a fair and reasonable wage.

“Additionally, our state needs to move away from a cyclical boom/bust cycle,” he said. “It’s not sustainable. Stability is key.”

In spite of these misgivings, 2019 is shaping up as another significant 12 months for industry.

Wages growth

For an eight-year run between 2004-2005 and 2012-13, WA outperformed or equalled Australian wages growth.

But as the economy declined, earnings followed suit and the state has scored below the national average every year since.

The latest State Budget predicts wages growth of 1.75 per cent in 2018-19 and 2.75 per cent in 2019- 20, which is expected to be ahead of the Australian average for the first time in seven years.

Employment

The mining sector has started rolling out the jobs again, increasing employment by 24 percent over the last year to September.

The 2018-19 State Budget forecasts an annual average employment growth of 1.5 per cent in 2018-2019 and 2 per cent in 2019-20.

Population growth

Sharply declining since 2012, WA’s population growth fell from 3 per cent to 0.6 per cent by 2016.

In 2016 and 2017, net interstate migration was -13,133 and -12,818 respectively.

The 2015 WA Tomorrow report predicts a population of 3.27 million by 2026.

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