Queensland’s resources outlook

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Michael Roche, Chief Executive Officer, Queensland Resources Council delivered this presentation at the Galilee Basin Coal & Energy Conference 2012. This two day event looks at the significant proposed investment in the Galilee area including coal mining, underground coal gasification, coal seam gas, geothermal, shale and much more, bringing together the wide variety of explorers, project developers, service providers and government representatives under the one roof. For more information about the annual industry gathering in Brisbane/Australia please visit the conference website: http://bit.ly/1fvyzHz

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Queensland’s resources outlook

  1. 1. Galilee Basin Coal and Energy Conference Hilton Hotel, Brisbane 12 November 2012 Queensland’s resources outlook Michael Roche Chief Executive
  2. 2. Today‟s messages • Days of easy money on the back of high commodity prices are over • Hard work ahead is growing volumes, boosting productivity, getting costs down and holding onto or growing market share • Time to get serious about labour market, skilling, infrastructure and taxation reforms • Tough market globally and will be for some time but signs of prices bottoming • Confident about long-term growth prospects.
  3. 3. Who is the Queensland Resources Council? > The Queensland Resources Council (QRC) is a not-for-profit peak industry association representing the commercial developers of Queensland‟s minerals and energy resources > 90 full members – explorers, miners, mineral processors, site contractors, oil and gas producers, electricity generators > 178 service members - providers of goods or services to the sector
  4. 4. Aberdare Collieries Cement Australia Lagoon Creek Resources Rio Tinto Coal Australia Adani Mining Civil Mining and Construction Leighton Contractors Santos/TOGA A.J. Lucas Coal Technologies Clean Energy Australasia Liberty Resources Sibelco Australia Alcyone Resources Clean Global Energy Linc Energy Sojitz Coal Mining Allegiance Coal Coalbank Macmahon Holdings Sonoma Mine Management Altona Mining Cockatoo Coal MacMines Austasia Stanmore Coal Ambre Energy CuDeco Mastermyne Strait Resources Anglo American Exploration Downer EDI Mining Mega Uranium Summit Resources Anglo American Metallurgical Coal Eagle Downs Coal Management Metallica Minerals Superior Coal Aquila Resources Ensham Resources MetroCoal Arrow Energy ERM Power Millmerran Power Management Tata Steel Resources Australia Bandanna Energy Evolution Mining Minerals and Metals Group BHP Billiton Cannington Exco Resources Mitsubishi Development BHP Billiton Mitsubishi Alliance Golding Contractors New Hope Group Birla Mt. Gordon Guildford Coal Norton Gold Fields Blackwood Corporation GVK Hancock Coal Origin Energy Caledon Coal Investigator Resources Paladin Resources Cape Alumina Ivanhoe Australia Peabody Energy Cape Flattery Silica Mines Jellinbah Resources QCoal Carabella Resources Jindal Steel & Power QER Carbon Energy John Holland QGC Carpentaria Gold Rio Tinto Alcan Thiess 90 full members 178 service members Undamine Industries Vale Vital Metals Watpac Civil & Mining Wesfarmers Resources Westside Corporation Whitehaven Coal Xstrata Coal Australia Xstrata Copper Xstrata Zinc Australia Yancoal Australia 41 associate members
  5. 5. The way it was: Growth Outlook Study – November 2011 QRC commissioned study to provide government/industry with thorough and consistent understanding of ability of Queensland economy to expand to meet needs of expected growth in the resources sector. • 71 companies approached • 32 companies with qualifying projects (>$300m spend) Information collected on 66 projects with specific details of: 1. electricity demand 2. water demand 3. labour requirements (construction and operation) 4. capital spend and output Total capital expenditure of $142b by 2020 if all projects proceed – which of course was never going to happen
  6. 6. Galilee advanced coal projects* GVK Alpha Project Kevin’s Corner $6.4 billion $4.2 billion Adani Carmichael $7.1 billion Bandanna South Galilee $4.2 billion Waratah China First $8.1 billion * China Stone – Terms of Reference out for consultation Source: Coordinator-General, Queensland Government November 2011
  7. 7. Galilee key role in full growth scenario coal production 7
  8. 8. New Qld resource projects – Nov 2011
  9. 9. Qld resource projects balance sheet November 2012 DEBIT Norwich Park, Gregory open cut coking coal mines closed Shutdown of Blair Athol accelerated Peak Downs expansion shelved, Red Hill and Saraji East planning halted Ensham accelerating open cut wind-down Several coal company project teams disbanded or wound back To be advised Arrow Energy LNG project – decision late 2013 Xstrata Coal Wandoan project – decision due end-2012? Adani Carmichael project in Galilee Basin – EIS soon? Other Galilee projects progressing through EIS process CREDIT Caval Ridge & Daunia (BHPB) coking opencuts ($4.2b + $1.6b) Vale‟s Eagle Downs underground coking coal ($1.25b) GVK-Hancock‟s approvals in for Alpha mine, rail and port - but go-ahead deferred ($10b) Grosvenor coal mine (Anglo-American) board approval ($US1.7b) $45b CSG-LNG industry contracted and delivering 2014-15 Incremental expansions by Xstrata Copper, Xstrata Zinc Uranium mining go-ahead - projects at least 4 years off
  10. 10. What‟s ailing Queensland resources? • Global macroeconomic uncertainty – knock-on from Euro debt, patchy US growth, lower output from China, India – leading to commodity price downturn • High construction and operating costs compared with global competitors • Persistently high $AU and $US-written contracts – currency judged against economic uninspiring performance of others plus relatively high interest rates • Capital – more attractive global and Aust investment options (e.g. WA iron ore) • Increasing global competition – 6% coking coal lost to USA during floods unrecovered; new provinces Mozambique, Mongolia on rise (5x output by 2025) • Skills shortages, IR rigidities – small pool, unsustainable wage rises • Australia‟s „sovereign risk‟ reputation – unpredictable tax regimes
  11. 11. Current Qld coal mines uncompetitive Source: Port Jackson Partners (2012), Regaining our competitive edge in minerals resources. Minerals Council of Australia – Minerals Week presentation, 30 May 2012
  12. 12. Current thermal mines already loss-making + 30% company income tax + capital replacement costs (pay back original investment) + carbon tax + replace depreciated assets Bracket not proportional to the aggregate of these costs Average cash costs $77US/t Source: Internal workings using forecasts provided by Macquarie, Credit Suisse, Goldman Sachs, Merryll Lynch, ANZ, Citigroup, UBS, AME, Wood Mac and CRU Source: Analysis by AME Group(2012) for a speech by Mr Peter Johnston, Chairman, Minerals Council of Australia, Chief Executive Officer and Managing Director, Minara Resources Limited at MCA Minerals week 2012 12
  13. 13. Current coking mines becoming marginal + 30% company income tax + capital replacement costs (pay back original investment) + carbon tax + replace depreciated assets Bracket not necessarily proportional to the aggregate of these costs 2012 level of cash costs US$107/t Note - These are premium brand hard coking prices. Average prices for semi-hard and semi-soft brands can be $20-$40/t less in value Source: Internal workings using forecasts provided by Macquarie, Credit Suisse, Goldman Sachs, Merrill Lynch, ANZ, Citigroup, UBS, AME, Wood Mac and CRU Source: Analysis by AME Group(2012) for a speech by Mr Peter Johnston, Chairman, Minerals Council of Australia, Chief Executive Officer and Managing Director, Minara Resources Limited at MCA Minerals week 2012
  14. 14. New resource development projects in Qld costly Source: Port Jackson Partners (2012), Regaining our competitive edge in minerals resources. Minerals Council of Australia – Minerals Week presentation, 30 May 2012
  15. 15. Queensland coal‟s high effective tax rate
  16. 16. Lessons for Galilee Basin Galilee projects must target first or second quartile costs to be successful Regulatory complexity must give way to rational planning for growth Examples – rushed, flawed strategic cropping land law, urban buffer zones, one-size-fitsall land access rules, out-of-control conditioning of projects, including „wish-list‟ Social Impact Management Plans (SIMPs) Under previous govt: Projects conditioned in advance of formal government policies; environmental, Coordinator-General approvals prescriptive, not risk/outcomes based Regulatory risk faced by resource projects (but not other economic pillars) has been to be assessed against regulations at time of decision, not the time of application.
  17. 17. Newman Government can restore confidence Resources Cabinet Committee - opportunity to deliver real change: • Risk-based Terms of Reference for Environmental Impact Statements (EIS) – focusing EIS on real risks • Slashing the number and costs of project conditions • Returning social impact assessments (SIMP) and conditions to mitigating key direct impacts – end to „cargo cult‟ mentality • Already fixing previous flawed, rushed policies (strategic cropping land, on-site dam standards, offsets policy, handling of mine water discharge) 17
  18. 18. Industries under attack > Greenpeace, Lock the Gate, The Australia Institute et al behind concerted campaign > Support sought from international foundations and wealthy Australians > Government-funded Environmental Defenders Offices in NSW and Qld foundation contributors > Objective: Shut down and closure of the coal industry in the name of climate change > Strategies: Colonise genuine community groups and influence concerns, delay coal projects, then undermine the social licence of the industry; finally shaking confidence of investment community to stop growth
  19. 19. Greenpeace targets Galilee Basin projects > “Cooking the Climate, Wrecking the Reef” (Sept 12) the latest Greenpeace anti-coal salvo > Claims Galilee projects will produce 330 mt of coal and add to Australian carbon emissions by 180% (by counting use of our coal overseas) > All up Greenpeace claims Queensland will be exporting 1,056 mt of coal
  20. 20. NGOs exploiting Great Barrier Reef fears • Key to anti-coal movement strategy led by environmental activists: raise spectre of alarmist coal growth scenarios: coal „super highway‟, >1 billion tonnes of coal exports by 2020, generating over 11,000 coal ship movements • Generate community pressure on governments to delay/stop projects • Industry working with Government in fighting back with comprehensive Cumulative Impact Assessment, reef-wide shipping study and realistic industry growth and shipping data. Working closely with state and federal Governments and UNESCO World Heritage Committee on Strategic Assessments. • State Ports Strategy: focus growth in existing port precincts • Fact: took past 13 years to grow coal exports by 71 MT. Greenpeace says it can grow > x6 in one decade. Federal forecasts says by 2020, coal exports may get to 300-320 MT (depending on what happens in Galilee Basin, Wandoan project) 20
  21. 21. Reef Wide Shipping impact assessment (October 2012) Optimistic coal ship number is 4,200 or 37% of Greenpeace number. Shipping through reef highly regulated and monitored. Management of shipping impacts and risks extremely well-managed and improving Forecast ship numbers: minimal risk change Can do more to ensure vetting quality of ships and ship crews.
  22. 22. Asian Century – opportunity and challenge 4 billion people in continental Asia Striving to achieve in decades what took centuries for ‘West’ Asia needs energy, steel and metals. Both new markets and new (cheaper) competitors in the region
  23. 23. Title Subtitle Sound global fundamentals
  24. 24. Sound global fundamentals
  25. 25. Economic contribution of the Queensland resources sector UPDATE: 29 NOVEMBER 2012 Directly and indirectly 2010-11: One in every $5 of the state‟s economy One in every 8 jobs $20.5 billion in purchases in Qld ($18.8b 2009-10) $4.7 billion in wages to 40,630 direct resource workers 2011-12 data to show huge increase in goods and services spending www.queenslandeconomy.com.au
  26. 26. Galilee Basin Coal and Energy Conference Hilton Hotel, Brisbane 12 November 2012 Queensland’s resources outlook Michael Roche Chief Executive

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