19 November 2010

Australian minerals and energy sector buoyed by increasing demand

Economies such as Brazil, Russia, India and China may be battling it out between themselves to claim victory as a leading growth region but, according to a report by the Australian Bureau of Agriculture and Resource Economics and the Bureau of Rural Sciences (Abare-BRS), Australia remains a prime investment destination with the value of domestic minerals and energy projects at an advanced stage of development rising to a record high of AUD 133 billion at the end of October 2010.

The AUD 133 billion-investment covers 72 advanced stage projects – either under construction or committed. Of these 26 were energy developments, 25 were mineral prospects, 15 were related infrastructure projects and the remaining six were minerals and energy processing projects.

This 21 per cent hike in capital expenditure from AUD 110 billion in April 2010 will not come as a surprise to those in the know, after all, it should reflect expectations of increasing demand for mineral and energy commodities in the medium and long term, bureau deputy executive director Paul Morris revealed in a statement this week.

It makes sense when put in context; countries such as India and China demand mineral and energy commodities in order to fuel growth. Companies investing in Australia today are targeting these markets, taking advantage of their hunger to develop.

Based on industry intentions surveyed in the June quarter of 2010, Australian Bureau of Statistics, cited by Abare-RBS, suggested new capital expenditure in the mining sector in 2010-11 could rise to around AUD 55 billion from a current level of AUD 35 billion. According to Abare-BRS, the 2009-10 result was the second highest on record and was 2.7 times the average annual expenditure of the past 30 years.

New capital expenditure – relating to spending on equipment, plant and assets in relation to mining or concentrating of ores and to spending on equipment, plant and assets for basic processing of mine output – provides an indication of the pace and scale of development in the Australian minerals and energy sector.

Commonwealth Securities economist Savanth Sebastian told the Sydney Morning Herald that the latest figures provided by Abare-RBS indicate a mining sector-led recovery. However, Sebastian noted the report comes while there is still ambiguity surrounding the Minerals Resource Rent Tax, a proposed levy on profits generated from the exploitation of non-renewable resources in Australia which is expected to be finalised next year.

He told the newspaper: "The one caveat on the sustained improvement in the mining states comes from the uncertainty surrounding the Mining Resources Rent Tax. The lack of certainty on the resource rent tax has the potential to stifle investment across the mining sector."

This levy, which was greeted by outrage in the resources sector, has not yet deterred investment in Australia and the record value of AUD 133 billion was buoyed, in part, by BG Group and Rio Tinto’s decision to proceed with planned developments; the former with a Queensland Curtis Island liquid natural gas facility and the latter with a commitment to expand its iron ore export capacity by 60 million tonnes over the next three years.

© Zephyr