The minerals sector

Michael Roarty, Science, Technology, Environment and Resources Section

Mining has long been a cornerstone of the Australian economy and the gold rushes were pivotal in the early development of the country. Australia is presently in the midst of yet another minerals boom—exhibited by both high prices for, and record export volumes of mineral commodities, especially iron ore and coal. This follows previous minerals booms in the early 1960s and mid-1980s. The present boom is underpinned by high demand for primary commodities in the industrialising economies of China and India.

Geologically, Australia is an ancient continent with an abundant supply of minerals. The known deposits have been relatively easy to discover and develop. Australia has relatively flat terrain and is sparsely populated apart from some coastal regions, both aspects advantaging exploration and mine development. Western Australia and Queensland are the most resource-rich states. Of Australia’s roughly 340 mines, almost half are in Western Australia.

Today, the Australian minerals sector accounts for eight per cent of gross domestic product (GDP). Australia is among the top five producers of most of the world’s key mineral commodities, being:

  • the world’s leading producer of bauxite, alumina, rutile and tantalum
  • the second largest producer of uranium, lead, ilmenite, zircon and lithium
  • the third largest producer of iron ore, and zinc
  • the fourth largest producer of black coal, gold, manganese and nickel and
  • the fifth largest producer of aluminium, brown coal, diamonds, silver and copper.

Additionally, Australia is the world’s largest exporter of black coal, iron ore, alumina, lead and zinc and the second largest exporter of uranium.

Mineral exports

The resources sector (including oil and gas) contributed just under $160 billion to export earnings in 2008–09, compared with $35.9 billion for the rural sector and $38.3 billion for manufacturing. The growth of mineral commodity exports since 2003–04 has been phenomenal, driven by strong demand for iron ore and coal. The value of iron ore exports increased from $5.3 billion in 2003–04 to $34.2 billion in 2008–09 while metallurgical and thermal coal increased in value from $6.5 billion to $36.8 billion and $4.4 billion to $17.9 billion respectively over the same period. The Australian Bureau of Statistics showed a trade surplus for the June Quarter 2010 (a rare phenomenon), largely due to increases in both volume and prices for exports of iron ore and coal.

Coal

Australia has very large reserves of extremely high quality thermal coal (used for making steam and generating electricity) and coking coal (used for steel making) located in New South Wales and Queensland. The coal industry is the mineral industry’s largest employer.

Despite the difficulties associated with coal production and use (concern over carbon dioxide emissions), some 41 per cent of the world’s electricity is generated using coal and this proportion is continuing to increase. In Australia, over 80 per cent of our electricity is generated by coal-fired power stations. In capital-intensive industries, such as power generation, it is not technologically feasible to achieve rapid change. A technology involving carbon capture and storage (CCS) which takes the carbon dioxide emitted from coal-fired power plants and reinjects it into suitable rock formations underground for permanent storage, is actively being evaluated. For more on this, see the brief Climate Change Action: A Multi-faceted Approach in this book. If CCS is proven to be viable and can be implemented on a large scale, coal’s environmental credentials would dramatically improve.

Other aspects

Mining of hydrocarbons (coal, oil and methane gas) faces controversy because of the greenhouse gas emissions associated with the combustion of these substances—a fact that is down to society’s addiction to hydrocarbons rather than mining per se. It must also be acknowledged, however, that mining of any commodity, if not properly managed, can cause localised pollution, soil degradation and release of potential toxins. On the other side of the ledger, mining employs 133 200 people directly, and Australian mining companies are major developers, users and exporters of computer software used to improve the efficiency of mining operations. The industry is also the largest employer of environmental scientists in the country.

Australia has developed a capacity to produce far greater volumes of commodities than are required for domestic consumption. However, this forces reliance upon the circumstances of the global market rather than setting prices according to the cost of production. Commodity prices are set in international markets by supply and demand fundamentals. In the current settings, commodity prices are at record highs because of strong world demand. This circumstance has dramatically improved Australian terms of trade—that is the ratio of export to import prices. Put another way, it takes fewer exports of a mineral commodity to balance the purchase price of, say, car imports. However, commodity prices can fall because of changing global circumstances such as falling world demand. Such circumstances lead to a decline in Australia’s terms of trade.

A major shift from earlier periods in the Australian minerals sector is that today’s major mining companies have a global focus and seek the most profitable mining ventures. This means they have no allegiance to a particular country. However, a vote of confidence in Australia is illustrated by huge capital investments currently being undertaken in a number of resource sector projects across Australia.

Minerals Resource Rent Tax

The most recent issue that has raised considerable interest and debate in the resources sector was the announcement in the 2010 Budget of the imposition of a Resources Super Profits Tax (RSPT) on the minerals industry. Shortly after the ALP leadership change it was announced that the RSPT proposal would be replaced with a proposed Minerals Resource Rent Tax (MRRT). In contrast to the RSPT, this would apply only to mined iron ore and coal rather than to all minerals. The major iron ore and coal producers, namely BHP Billiton, Rio Tinto and Xstrata, indicated to the Gillard Government that the newer proposed tax was less likely to reduce future mine investment. However, smaller mining companies have shown significant opposition to the MRRT proposal. With both schemes, the Commonwealth said that it intends to rebate any forgone mineral royalty income to the states and territories.

Library publications and key documents

Minerals Council of Australia (MCA), The Australian minerals industry and the Australian economy, MCA, Canberra, March 2010.

P Knights and M Hood, eds, Coal and the Commonwealth: the greatness of an Australian resource, University of Queensland, Brisbane, 2009.

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