If the flurry of recent announcements by Australia’s major iron ore producers is to be believed, and the Australian Securities Exchange’s continuous disclosure requirements would suggest they are, money is beginning to flow back into Western Australia’s Pilbara region. 

In recent months, project approvals have come thick and fast in the nation’s iron heart. Fortescue Metals Group, BHP, Rio Tinto and their respective project partners have given the tick to new mines, with each to create new jobs – especially in construction. 

Sound familiar? 

There are parallels between the increased demand for feet on the ground in the Pilbara at present and the mining construction boom which, combined with record demand for Australian iron ore, drove national prosperity from the mid-2000s through to the early 2010s. 

While it would take a brave soul to predict an economic boom to match these heights, the prospect of major investment spending has reignited concerns over an issue which took a back seat for many years – inflation. 

The topic came back into the public spotlight earlier in the year when the Australian Financial Review reported comments from Rio Tinto Chief Executive Jean-Sebastien Jacques to investors which suggested a surge in mining job demand in Australia would have a significant inflationary impact on the miner’s local operations by forcing wages higher. 

The statement was rebutted in the same publication by Woodside CEO Peter Coleman, who claimed wage growth had been modest in the region and such comments served to spook investors. 

There’s little doubt demand for workers in the mining space has increased dramatically recently. The August edition of DFP Recruitment Agency’s Mining and Resources Job Index revealed 29.2 per cent year-on-year growth in mining and resources job vacancies nationwide, with Western Australia hosting 47.2 per cent of all available jobs. 

This being the case and with profits and spending clearly on the up, should the industry and investors be worried about the looming impact of inflation on profit margins? 

According to Chamber of Minerals and Energy Western Australia (CME) CEO Paul Everingham, inflation is indeed returning, but that’s not necessarily a bad thing. 

“I think they may have been misinterpreted, but the Rio Tinto comments were stating the obvious – that there’s some normality returning to the price and wages market and that inflation is coming back into the market,” he said. 

“It’s not coming back in an unhealthy way, in fact, without small amounts of inflation, asset prices and wages don’t go up, so what’s the alarm? 

“I listened to the Reserve Bank Governor speak recently and he spoke about there being some good signs with small amounts of inflation coming into the economy.” 

A matter of experience 

The major iron ore miners in the Pilbara each demonstrated a remarkable ability to improve efficiencies in the wake of the mid-decade iron ore price collapse, optimising their projects and slashing excess to bring cash costs down and maintain the viability of their enormous operations. 

If anyone is going to manage changing market conditions, you’d back them in to do it. But not all in the Pilbara are producing on that scale, and not all feed the world’s iron ore markets. 

Mineral Resources, Pilbara Minerals and Altura Mining have each entered the lithium space in the region over the past few years, with the latter two solely focused on production of the battery metal. 

Operating in less established markets, these companies could be expected to feel economic forces more than the well-oiled larger operators. But Mr Everingham said he didn’t expect this to be the case. 

“You’ve got Chris Ellison at Mineral Resources, who’s been in the region for three decades, and Ken Brinsden at Pilbara Minerals who’s been there for two,” he said. 

“The guys at Altura worked for Ken at Atlas in iron ore, so all of these companies know the region through iron ore and have been there for two or three decades or more – that means they understand how to manage operations, production and costs in the Pilbara as well as anybody.” 

Mr Everingham said investment in construction while the rest of the market was low would hold the region’s newer miner’s in good stead now inflationary pressures were emerging. 

“None of them are going to face cost blowouts because they’ve all finished construction,” he said. 

Meanwhile, while planned regional investment over the coming years is significant, Mr Everingham pointed out that it paled in comparison to that of years gone by. 

“Let’s say over the next five years that you’re looking at $40- 60 billion of capital and production projects,” he said. 

“Compare that to $320 billion between 2005 and 2015 and you’re looking at something one- fifth of the size of the last expansion. It’s fantastic, and most states in Australia would be exploding with excitement. 

“In WA we’re excited, but it’s viewed as much more sustainable expansion and I think, as a result, you’re not going to see the really strenuous pressure on wages that you saw in the last expansion 13 or 14 years ago.” 

Staffing battles ahead 

The real challenge facing WA as mining spending builds again is workforce availability, according to the CME. 

The mining construction boom took place at a time when other states were in the economic doldrums, allowing WA to scoop the talent pool. This is not the case in 2018. 

“This time you’ve got infrastructure booms going on in New South Wales and Victoria that don’t look like they’re going to end anytime soon,” Mr Everington said. 

“That puts a real rope around the pool of engineering and construction personnel you can attract for construction and operation projects. 

“If you’re in Sydney and there’s plenty of engineering work going on and you’re paid pretty well but you might get 20 per cent more by coming to Perth temporarily, I don’t think you’re going to leave your job in Sydney. 

“I don’t think this time around that engineers and construction workers in big projects in NSW and Victoria are going to move as readily as they did between 2005 and 2010.” 

Mr Everington said industry and government needed to be open-minded to address the workforce challenges expected in the Pilbara in the coming years. 

“It means the industry needs exibility in the workplace, it means the industry needs to be able to tap into broader markets than just the east coast when there’s demand for engineering and construction services,” he said. 

“Hopefully that means both federal and state governments will continue to provide the exibility needed and that mining and engineering companies can continue to recruit from overseas markets.” 

Image: Haul trucks at a Pilbara mine sate, Pilbara News