Mining and resources will continue to be positive drivers of economic growth in Australia over the next five years, against expectations of a drop in mining investment, according to a new report from economic forecaster BIS Shrapnel. The report, entitled, Mining in Australia 2013 – 2028, anticipates mining production to grow by 41 per cent in the period, simultaneously pushing growth in mining activity, maintenance and exports.
LNG and iron ore led boosts in mining production will more than offset the economic burdens of dropping mining investment and flow through to construction and manufacturing, according to BIS senior manager Adrian Hart.
The mining investment boom peaked in 2012-13 and is expected to decline by 20 per cent over the next half decade, a forecast supported by the BIS report. According to Mr Hart, "Miners will continue to be squeezed by lower commodity prices and a high Australian dollar over the next few years... As such, they are going to extraordinary lengths to cut back on the high costs/low productivity culture which characterised the construction phase of the boom."
The report expects employment in the sector to rise only 11 per cent in the next five years as companies focus on productivity gains that fell by the wayside in the high growth focus of the mining boom. Employment growth is expected to occur primarily in oil, gas and iron ore, whereas mining construction employment is tipped to decline by 40 per cent.
Resource economic news
Australia’s central bank has left the door open for future rate cuts after downgrading its growth forecast for the year ahead on the back of a substantial fall in mining investment and a high local currency. The Reserve Bank of Australia’s quarterly statement on monetary policy lowered the gross domestic product (GDP) forecast for the 2014 calendar year to between 2 per cent and 3 per cent, down from between 2.5 per cent to 3.5 per cent forecast in August.
China’s export results bounced back last month. The China Customs Bureau reports exports jumped 5.6 per cent in October, beating expectations for a 0.3 per cent gain. China’s imports came in at an annual rate of 7.6 per cent, coming in slightly below expectations.
Resource company headlines
OceanaGold Corporation
(ASX:OGC) has spruiked a strong outlook for the end of the year and expects to finish the year with production up. The New Zealand and Philippines focused company has also confirmed its Didipio Gold-Copper Project in the Philippines was not directly impacted by recent typhoons. Managing Director & CEO Mick Wilkes is expecting a strong December quarter as a result of higher grades across all operations, which he expects will translate to strong cash flow.
Fortescue Metals’ Group Limited
(ASX:FMG) senior secured debt facility has been repriced by lead arrangers Credit Suisse and JP Morgan. Fortescue says its previous margin of 4.25 per cent has been reduced by one per cent to 3.25 per cent, while the maturity of the facility had been extended to June 30, 2019. The one per cent reduction represents an annual interest saving of approximately $US50 million per annum. The 3.25 per cent margin will decrease further as Fortescue reduces leverage through debt reduction.
Fortescue Metals Group Limited
(ASX:FMG) has moved early to repay $1 billion worth of senior unsecured notes, part of a larger $US2.04 billion package due in 2015. It represents the third early repayment move on the iron ore giants $US12 billion gross debt pile in the past three months, and is expected to save $US70 million per year in interest.
AngloGold Ashanti Limited
(ASX:AGG) says it has swung into profit in the third quarter, after increasing output and reducing production costs. The South-Africa-based bullion producer generated a shareholder profit of $US1 million in the quarter. In the previous quarter the firm reported losses of nearly $US2.2 billion on massive write-downs linked to the slumping gold price. The profit was achieved by a mixture of higher production, cost cutting and a weaker South African rand.
Orica Limited
(ASX:ORI) is warning volatile conditions will add a greater degree of uncertainty to the trading environment in the year ahead, but says it will improve on its full-year profit from fiscal 2013. The company posted a net profit of $602 million, a 7.5 per cent decrease on the $650 million recorded in the previous corresponding period. In the same period sales revenue was $6.9 billion, a three per cent increase on the previous year.
Mining and drilling contractor Ausdrill Limited
(ASX:ASL) warned its annual profit will dive as much as 61 per cent to between $35 and $45 million as it battles against challenging market conditions.
Mining service provider Sedgman Limited’s
(ASX:SDM) latest outlook cited challenging and weak trading conditions, on-going delays in project approvals and awards as it forecast first half earnings to fall to a net loss of up to $8 million.
