Resource forecast looking grim: BREE

Resources Corner

Billions of dollars worth of resources projects are likely to come under threat from ongoing deteriorating market conditions, according to the Bureau of Resources and Energy Economics. The bureau will release its six-monthly review of Australia’s resources and energy projects next week and the grim expectations are for more forecasts of the shelving or delaying of major projects over the next three years. Bree’s most recent forecast of committed investment by mining companies was $268 billion in April, which it then expected to topple to $256 billion by years end before plummeting to $70 billion by 2017. Next week’s release should shed some light on whether the bureau expects mining investment to recover beyond 2017. A recent brief sent to the coalition government from the Minerals Council of Australia lamented that the country needed to be “hungrier” for resources projects, saying there is significant potential for investment and exports and government involvement is crucial. The Minerals Council cautioned that any short-term slowdown in mining investment may evolve into structural problems in the long-term.
 
According to the brief: “The urgency of the task of rebuilding industry competitiveness has only increased in the context of lower ¬commodity prices, stubbornly high costs, cut backs in investment and strong supply competition from other resource-rich nations.”
 
Some of the major names in the $150 billion worth of projects delayed or scrapped in the 12 months April include:
 
Rio Tinto Limited (ASX:RIO) shelving gas switching plans for its Gove refinery, a potential $600 million pipeline.
Woodside Petroleum Limited (ASX:WPL) $36 billion Browse and $12 billion Sunrise liquefied natural gas projects.
BHP Billiton Limited (ASX:BHP) shelving $30 billion Outer Harbour and mothballing its $20 billion Olympic Dam expansion.
 
BREE’s review and forecast is expected to reveal an expectation that resources investment will peak at slightly less than 8 per cent of GDP in the second half of calendar 2013, before remaining relatively high for a few quarters following due to a backlog of investment for committed work on some robust LNG projects. After that however the investment forecast tumbles due to a sharp lack of new committed projects. 
 
According to the Minerals Council: “The urgency with which policymakers tackle the nation’s structural competitiveness problem will determine if Australia secures maximum returns from future minerals resource development...The more supportive the policy environment, the greater the chances of Australia negotiating a smooth growth transition from current high levels of investment and securing a share of the next wave of global minerals resources investment.”
 
Resource company headlines
 
Rio Tinto Limited (ASX:RIO) has reportedly told contractors in QLD that it has put its $1.4 billion South of Embley bauxite mine on hold for as long as 18 months. Media reports say Rio's decision comes in the wake of the state government's decision this past week to ban Cape Alumina's bauxite project in Cape York. The prospect of delays to Rio's project could have a further ripple effect, as the project's port was expected to provide access to bauxite leases held by the Queensland government, which may be sold within weeks.
 
BHP Billiton Limited (ASX:BHP) says it reduced the number of injuries and lowered potential exposure to carcinogens in full-year 2013. In the miner's sustainability briefing, BHP reported a 5.7 per cent reduction in potential employee exposures to carcinogens and airborne contaminants compared with the 2012 financial year. The total recordable injury frequency, which measures fatalities, lost-time cases, restricted work cases and medical treatment cases, compared with actual hours worked, improved two per cent compared with the prior year. The miner is targeting a 10 per cent reduction in exposure to carcinogens by full-year 2017, and targets zero fatalities at its controlled operations, compared with three fatalities in fiscal 2013.
 
Gindalbie Metals Limited (ASX:GBG) flagship Karara mine is facing delays, as problems with its tailings system continue to hamper the operation. Karara was originally planned to be producing at a full 8 million tonnes per year by July this year, but problems with the tailings system has caused continuing delays. The magnetite producer, which operates the mine in partnership with Chinese steel giant Ansteel, says the problems are persisting, and will require significant extra work and more funding to fix. The new target is to produce at 75 per cent of capacity by March 2014, with the ramp up to full capacity potentially taking another year.
 
Four under pressure directors resigned from Dart Energy Limited (ASX:DTE), ahead of a shareholder vote at the companies AGM. The Coal seam and Shale gas explorer says four outgoing directors will be replaced by four recommendations from major shareholder New Hope Corporation, which had been striving to overthrow the dart board after what it described as a sad and long history of failures.