Infrastructure Challenges forthe South AustralianResources Sector Presentation by John Roberts, President SA Chamber of Mines & Energy September 2007
Who is SACOME?• An industry representative body• Funded by industry for industry• The peak body for Government/Industry interaction/collaboration September 2007
What does SACOME do?• Influence Government policy• Promote the industry• Assist industry• A Resources Industry Strategic Plan September 2007
In 2000…..• Four mines• Exploration average ~ $30m p.a.• Employment, 2600 people• Industry not considered very important to SA September 2007
Snapshot 2012• 20 major mines• Employment, 10,910• Exploration, ~AU$250m p.a.• Export Revenues, 38% AU$4.2 bn• Over 30 exciting Mineral and Energy Projects September 2007
South Australian Mineral ExportsMineral Exports are the largest single sector contributing to SouthAustralian exports, at over a third (38%) of total state exports of $11.2bn Minerals - $4,225 mil Petroleum - $111 mil Minerals, Agri & Food - $3,113 mil 38% Wine - $1,223 mil Machinery - $445 mil Road Vehicles - $334 mil Other - $1,668 mil (All figures in Millions; 10/11 Data) September 2007
Project pipeline (Courtesy of DMITRE) September 2007
International Partnerships• India • Tata Group / Geodynamics • Reliance Group / UXA Resources• Japan • JOGMEC / Minotaur • Mitsui Corp / Uranium One• South Korea • LG Internaional / Scimitar Resources September 2007
Chinese Partnerships• CITIC Group / Southern Gold & Marathon Resources• Sinosteel / PepinNini• Baotou Iron & Steel Group / Centrex Metals• Heilongjiang Resources Limited / Havilah Resources• Focus Investment and Tangshan Xingye Industry and Trade Group / WPG• Jilin Tonghua Iron & Steel (Group) Mining Co / IMX Resources• Taifeng Yuanchuang International Development Company / IMX Resources• Tongjiang International Energy Co. Ltd / Altona Resources• CNOOC (Beijing) Energy Investment Co. Ltd / Altona Resources• Rizhao Steel /OneSteel Shanxi Haixin Iron & Steel Group Co. / OneSteel• Hebei Jinxi Iron & Steel Co. / OneSteel• Wuhan Iron and Steel Corp. (WISCO) / IronClad Mining• Liuzhou Iron and Steel Co Ltd / IronClad Mining• OM Materials / IronClad Mining• Jianqyin Huaxi Steel Co. / Lincoln Minerals Ltd• Chengdu Di’ao Mining Industry Energy Resources Co Ltd / Panda Mining• China Non-Ferrous Metal Industry’s Foreign Engineering & Construction Co. / Terramin Australia• South Australia Ludi Mining Pty Ltd. September 2007
Mines and Resource Value 50 $20 Billions Projected 45 Number of Mines (LHS) Mines, & $18 Resource Value Projected No. of Mines 40 Resource Value (RHS) $16 35 $14 30 $12 Olympic Dam Expansion 25 $10 Global Financial Crisis 20 $8 15 $6 Record Commodity 10 Prices $4 5 $2 0 $0 2011 2012 1980 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2015 2020 Years 1980-2020 September 2007
Exploration Licence CoverageSouth Australia’s Mineral Exploration Upswing March 2011
The Future…..• 23 Mines by 2015• 40 Mines by 2020• +14000 new jobs• Infrastructure Spend, > $59bn by 2020• Upstream petroleum & geothermal expenditure to reach $800+ million by 2020• Revenues, est. $7bn+ p.a. within 5+ years September 2007
Fraser Mining Survey Report 2012 • South Australia ranked 19th in the Policy Potential Index • Ranked 3rd behind NT & WA, down from 1st last year • Ranks first in quality and accessibility of its Geological database • SA ranks 31st on Infrastructure access and availability, and mid-ranked in Australia, up from last position last year (compared to other States).(McMahon, F., & Cervantes, M., ‘Survey of Mining Companies 2010/2011’, Fraser Institute, Canada, 2011)
Infrastructure Demand Studies• 2007 - SACOME commissioned high level resourcesindustry infrastructure study through Connell Wagner, SCM &Prof Dick Blandy• 2009 – RESIC commissioned resources infrastructuredemand study through Aurecon (final report recommended that moredetailed work was needed)• 2011 – RESIC commissioned Parsons Brinkerhoff to build onthe work done in 2009 with a more detailed study whichallowed data to be used in SARIG and also offeredrecommendations to Government.
SACOME Infrastructure Study– Key Findings (2007)• Mining Sector demand for: • Power will increase 5 fold • Water and Gas will treble • Road, rail & port usage will treble • Own staff will double• GSP growth rate to reach 5.5% (2.75% historic)• Major planning and coordination required (RESIC established)
Infrastructure Study 2007• SACOME study in 2007 made the followingrecommendations:-Facilitation needed to improve coordination and processes;(RESIC formed in 2007 as a result of this recommendation)- Need to facilitate development of shared infrastructure;- Provide investor certainty and facilitate assistance- Migration, off-shoring and investor strategies developed- Greater Government and industry participation to focus andimprove investor certainty;- Clear pathways - leverage off BHP Billiton’s requirements- Set effective infrastructure finance framework
Infrastructure Study 2009• RESIC study - through Aurecon:Power demand - (installed load) will increase, needingapprox: 1,480 MW by 2019;-SA is likely to require additional baseload generation capacitywithin 2-3 years to deal with future demand.Water demand - across the South Australian Resourceindustry will increase from approximately 43,000 ML in 2010 toapproximately 130,000 ML in 2019.Road transport - the next 10 years is forecasted atapproximately 24 million tonnes inbound and approximately100 million tonnes of finished product outbound across SA.
Infrastructure Study 2009• RESIC study - through Aurecon:Rail demand - forecasted rail freight inbound andoutbound movements will increase, reaching over 365 milliontonnes in total over the next ten years, an average ofapproximately 35 million tonnes per annum.Ports – a number of resource companies indicated therequirement of deep sea Port facilities at PortBonython for the export of bulk materials
Infrastructure Study 2009Aurecon was not required to undertake any analysis or interpretation of thedata and only reported on the survey information captured. Aureconundertook a limited review of the data provided prior to compiling it into fiveGIS maps (power, water, gas, road, rail) representing four different timeperiods.Recommendation – that a more detailed study of theinfrastructure demands, capacities and the potential clusteringand network opportunities for these input and outputinfrastructure types is required to allow a more detailed analysisof commercial opportunities to develop and shareinfrastructure.Data from this analysis will assist RESIC in determining andprioritising their activities in planning future infrastructure.
Infrastructure Demand Study 2011 RESIC – through Parsons Brinkerhoff: • $59 billion worth of projects (best case) or $39 billion if project probability factored in; • Report made recommendations that were presented to Government; • Recommendations currently under public consultation process.
Infrastructure Demand Study 2011- Recommendations1) Infrastructure corridors & Utility Hubs• The South Australian government to facilitate development of infrastructure corridors and utility hubs through a master planning process known as a Infrastructure Demand Study (IDS)2) Development of deep-sea ports, rail and road logistics• The South Australian government of three new deep sea ports that are able to be served by appropriate rail and road infrastructure, sufficient to support the future minerals and energy projects in SA.3) Electricity infrastructure• A nominated case manager to be appointed to work with local mineral resource companies, the Australian Energy Regulator, and with ElectraNet.• Assist in accelerating a 275kV augmentation on Eyre Peninsula by the end of 2016 or earlier to meet industry needs.
Infrastructure Demand Study 2011- Recommendations4) Water resources• The Department for Water undertake detailed mapping to identify groundwater resources and potential extractable volumes at key identified areas in SA. As a priority the key area of the Eyre Peninsula, is to be finalised by 2012.5) Government facilitation of investment in resources infrastructure• The Department for Manufacturing, Innovation, Trade, Resources and Energy work with geographically grouped resource and energy proponents to: • assist with making companies’ infrastructure projects investor-ready; • assist in packaging investment ready information for prospective investors; and • assist in connecting investment ready packages and resources and energy project proponents with likely infrastructure investors.
Infrastructure Demand Study 2011 • Electricity - uncertainty over available capacity remaining on existing transmission networks and timing on augmentation plans for new network infrastructure (est 1,200MW peak demand by 2017) • Water - uncertainty over water supply quality, availability and sources (est. 170 GL pa required by 2017); • Logistics – concerns about rail gauge inconsistencies, capacities and uncertainty over interconnectivity bet. Proposed projects and import / export developments; • Ports – lack of deep-water bulk commodity port facilities to meet forecast capacity (highlighted as major issue) expected 120 mtpa outbound by 2017 and beyond.
National Demand & SupplyChallenges• Economic modelling firm Econtech estimates that the national ‘gap’ between infrastructure demand and supply in 2005 amounted to $1.15 billion for electricity, $10 billion for roads, $8.06 billion for rail, $2.6 billion for gas, and $3 billion for water.• The Australian Energy Market Operator has found that NSW may face an electricity supply deficit of 182 MW by 2015-16; Queensland of 34 MW by 2014-15; and Victoria and South Australia will face a combined deficit of 17 MW by 2013-14.• PwC report claims that by 2050 Australia will require an additional 173,348 kilometres of roads needing investment to increase by $2.5 billion every year until then. Source: Infrastructure Finance Reform – Issues paper July 2011 – Infrastructure Australia
CHALLENGE: Finding the appropriate role for government and the private sector and how the risks of infrastructure projects can be efficiently shared.
CASE STUDY:Need for development of a bulkcommodities port in the Upper SpencerGulf
Iron Ore NORTH Export Plan EYRE Iron Ore Mine, Project, BRAEMAR Prospect, Occurrence Potential Utilities HubEstimated ResourceEYRE = 2,400 MtNORTH = 1,000 MtBRAEMAR = 2,000-4,000 Mt
Iron Ore on the Eyre Pt. Bonython Pt. Spencer Iron Ore Mine, Project, Prospect, Occurrence Potential Utilities Hub
Ports Timing• Port Spencer to be fully funded privately• Upper Spencer Gulf port needed - Port Bonython identified.• Yorke Peninsula - last of ports required.• Recognise that other solutions are being used or developed (eg IMX & Pt Adelaide, IronClad & Lucky Bay, Pt Pirie). Sub-optimal solutions ?
Port Bonython scenario• Approx. $600m CAPEX• Requires approx. 15mtpa of iron ore throughput over 30 years• Assumes port charges of approx. $10/tonne
Port Bonython : Status• The Flinders Ports-led consortium won preferred bidder status to develop the project in late 2008;• The feasibility study confirmed that a harbour could viably built; the long term tonnage required to justify a deep water port, but initial throughput is problematic;• In March 2012, SA Government awarded major project status to the project (deems the project to be of major environmental, social and economic importance to the State under section 46 of the Development Act 1993);• If approved, construction would take about 2.5 years to complete, employ about 400 workers, ready for export in about 4 to 4.5 years from now.
Hypothetical…. What if the bankable tonnages were estimated (in the short to medium term) to be considerably lower that the 15mtpa required ?• Project would be unlikely to be funded by private financing without proven bankable tonnages• Unlikely to be any Infrastructure Australia funding• SA Govt does not have spare $ in budget over at least next 2-3 years
A case for Govt intervention ?• Should the government intervene to correct a market failure, to stimulate development and increase production ?• Regulatory Intervention - Minimise bureaucracy in relation to infrastructure projects. - Facilitate land re-zoning.• Financial Intervention - Cash upfront - Equity position - Underwriting• Facilitation - Collate information on projects. - Facilitate or co-ordinate discussion by industry and infrastructure providers.
Financial Intervention ?• Equity Position - Enter into a Public-Private-Partnership to develop critical infrastructure projects.Case Example: Oakajee Port and Rail Project• WA government to contribute $279 million (additional $399 million from Federal Gov. fund) for government owned port infrastructure.• Recover funding via. user charges.• After a 50 year lease Oakajee Port & Rail (OPR) will cease control of the private infrastructure and revert to the State.
Financial Intervention ?• Underwriting - Underwrite a part of the financial or operating risk to ensure feasibility of the project.If needed..................The State Govt could underwrite a percentage of unsecuredthroughput at a discounted rate of, say, $7/tonne (there areno operating fees without throughput)Max. $35m p.a. ?
The Benefits of Investment• Provide certainty to Resource projects of accessibility and availability of critical export infrastructure.• Through certainty, stimulate project growth and development.• Minimise cost of transportation through efficient systems, capacity, and availability.• Through assisting further development, the levels of royalty, tax revenue, and Gross State Product will increase.
It’s the ‘chicken & egg’ scenario...• Many companies are unable to finalise their mine without a port to get to market, but infrastructure providers are unable to fund a port without the mines already being in place.• SACOME expects the role of government will need to go beyond a coordination and facilitation role and include the provision of seed funding or underwriting to break the ‘chicken and egg’ cycle with market failure infrastructure.
State Infrastructure Plan DiscussionPaper 2010: Priorities – Mining• Facilitate the expansion of Olympic Dam.• Develop transport, energy, communications and water infrastructure to support growth and development of the minerals and resources sector.• Develop infrastructure to support the expansion of industry in Upper Spencer Gulf cities to support the mining sector.• Upgrade the electricity transmission network to accommodate investment in renewable energy generation.• Establish a deep water bulk commodity export port on Eyre Peninsula for the export of bulk minerals.• Facilitate market driven approaches to common user infrastructure development.
Community Engagement• Resource sector more visible as exploration and mining activities occur closer to regional communities• Not just mining, but the infrastructure that comes with it e.g. transport, ports, desalination etc• SACOME has taken the lead in recognising community expectations by developing and launching the “Code of Practice for Community Engagement”
Community EngagementSACOME has increased role in community engagement, e.g. liaising with SAFF, attending regional events and actively assisting in managing issuesThe challenge is this: How do we develop a successful mining industry which enhances and compliments regional South Australia ?
“I think if you look back over the last 30 to 40years, many developed countries have under-invested in infrastructure, whether it’s waterinfrastructure or power infrastructure ortransport infrastructure, and there’s a price topay for that and we’re beginning to see someof the outcomes.A lot of the existing infrastructure is underpressure: power blackouts or near blackouts,our transport system’s groaning at the seams.These are the sort of challenges we faceglobally.”Sir Rod Eddington, Chairman, Infrastructure Australia(Sinclair Knight Mertz Interview)
“I think if you look back over the last 30 to 40 years,many developed countries have under-invested ininfrastructure, whether it’s water infrastructure or powerinfrastructure or transport infrastructure, and there’s aprice to pay for that and we’re beginning to see some ofthe outcomes. SURE HOPE SO !A lot of the existing infrastructure is under pressure:power blackouts or near blackouts, our transportsystem’s groaning at the seams. These are the sort ofchallenges we face globally.” Sir Rod Eddington,Chairman, Infrastructure Australia (Sinclair Knight Mertz Interview)
Thank you...... Presentation by John Roberts, President SACOME