1. Introduction

Background to the inquiry

On Wednesday 27 June 2018, the Minister for Resources and Northern Australia, Senator the Hon Matthew Canavan, asked the Committee to inquire into and report on how the mining sector can support businesses in regional economies.
The Committee was asked to consider questions including:
The appropriateness of the payment terms offered to businesses by the mining sector;
Best practices between the mining sector and businesses, especially in regards to how they can support regional communities and economies;
Barriers to the greater use of regional businesses in the procurement of services by the mining sector;
Building the skills and expertise of businesses to leverage opportunities in the mining sector;
Opportunities for businesses to diversify to other markets; including the mining industry in Australia and overseas, and across different industries;
The role of mining equipment, technology and services (METS) organisations in R&D and innovation and how payment terms impact on companies' ability to invest in these areas;
How the Federal Government can support businesses in regional economies benefit from mining development;
How royalties are shared between landholders on gas fields and State and Territory Governments; and
Any other related matter.
When undertaking the inquiry the Committee was directed to have regard to:
How relationships between mining and businesses differ between jurisdictions and in overseas countries; and
The policies of State and Territory Governments in regards to mining procurement.

Conduct of the inquiry

The inquiry was launched with a media release on 29 June 2018, inviting interested parties to make submissions on the terms of reference. Specific invitations were also sent to relevant industry organisations, peak bodies, research institutes, chambers of commerce and enterprise, government agencies, mining companies, and state and territory governments.
The inquiry received 79 submissions and 12 supplementary submissions. A number of submissions were made on a confidential bases and some were published with the names of the submitters withheld. This was to protect the identities of businesses that have current contracts servicing the mining sector.
The Committee held 12 public hearings, including a number in mining areas around Australia. Hearings were held in Darwin, Rockhampton, Mackay, Tamworth, Port Hedland, Kalgoorlie, Singleton and Canberra. Travelling to mining regions was an important aspect of the inquiry, but the Committee acknowledges it was not able to visit all mining communities.
The Committee heard evidence from local councils, chambers of commerce, local businesses and industry associations, government and research bodies and mining companies, among others. The Committee is grateful to everyone who took the time to make a contribution.
The Committee would especially like to acknowledge the local business owners who provided evidence to the inquiry. The first-hand evidence provided by these businesses about the impacts of some mining company practices has been critical to this report.

Structure of the report

The report includes a list of recommendations, this introduction, and six substantive chapters that address the terms of reference. The six chapters represent the issues that rose to prominence during the course of the inquiry.
This introduction explains the conduct of the inquiry and contextualises the report with a summary of mining activity in Australia.
Chapter 2 looks at the question of ‘what’s in it for the regions?’ Specifically, how regional areas benefit from mining and what the negative impacts can be. It also looks at royalties, including ‘Royalties for Regions’-type programs, and presents a case study about mining returns to the Pilbara, Australia’s most productive mining region. The chapter presents recommendations aimed at increasing the share of wealth that goes back into the regional communities where the resources are mined.
Chapter 3 discusses the local procurement policies and practices of big miners, barriers to local procurement, and recommendations for increasing the use of local suppliers by mining companies in regional areas.
Chapter 4 summarises the significant amount of evidence the inquiry received on mining company terms of payment, contract provisions and contracting practices. It considers the responses of mining companies and makes recommendations for reform.
Chapter 5 looks at innovation and technology, skills and training, and diversification within the industries that service the mining sector. It considers skills shortages in regional areas, the opportunities offered by adopting a ‘clustering’ model, and opportunities for businesses in mining-dominated regions to diversify.
Finally, Chapter 6 investigates the issue of mining companies’ social licence to operate. This final chapter analyses miners’ use of fly-in/fly-out (FIFO) verses local workforces and mining’s interaction with agriculture and landholders. The chapter ends with recommendations for enhancing mining companies’ social licence to operate in regional communities in Australia.

Mining in Australia

Mining is a significant sector in the Australian economy and the largest source of Australian exports. According to the Department of Industry, Innovation and Science and Resources (DIISR), in 2016–17, the mining and energy sector accounted for seven per cent of Australia’s GDP, 55 per cent of Australia’s export earnings, and 14 per cent of private capital investment in the Australian economy.1
In 2017–18, resource and energy commodity exports reached ‘a record high’ of $226 billion and are forecast to reach a new record of $238 billion in
2018–19.2 In 2018, the sector’s profits are estimated to reach around $75.1 billion.3 Profit is projected to total 32.7 per cent of revenue, which is high compared with the average of 14 per cent across all Australian industries.4
IBIS World industry analysis indicate that BHP Billiton and Rio Tinto have the largest market shares at around 15 per cent and 10 per cent respectively. The next largest are Glencore, with nearly five per cent of the market, and Fortescue Metals Group with nearly four per cent.5
Most mines are located in regional areas, with a number in very remote areas. The biggest mining states are Western Australia, Queensland and New South Wales, with approximately 36 per cent of mining enterprises located in Western Australia, 24 per cent in Queensland, 20 per cent in New South Wales and only 10 per cent in Victoria. Other states and territories have small sectors.6 This distribution was reflected in the submissions received to the inquiry, with the majority being from Queensland, New South Wales and Western Australia.
The major commodities mined in Australia are iron ore at approximately 28 per cent, coal at around 27 per cent, oil and gas at around 20 per cent and other metals around 17 per cent.7
DIISR submitted that the industry directly employs around 234,000 people, with the average earnings for full time workers in the mining sector at $2,684.50 per week; around 40 percent higher than the average for all other industries.8
The Minerals Council of Australia provided slightly different figures, stating that mining employed around 218,000 people in 2017, with 61 per cent of these jobs located in regional and remote areas.9
The CSIRO submitted that mining is the largest employer in 23 Local Government Areas.10
The mining sector is also the largest contributor to research and development in Western Australia and Queensland with 49 per cent and 26 per cent of that state’s research and development spend in 2016, according to the CSIRO. The percentages are much lower in Victoria and New South Wales.11
In 2017, Deloitte Access Economics reported that the combined total of workers in mining and mining equipment, technology and services (METS) sectors (excluding oil and gas) was around 1.1 million. This represents around 10 per cent of jobs in Australia.12
According to the Western Australian Department of Mines, Industry Regulation and Safety, the average number of persons employed in the Western Australian minerals sector in 2017-18 was 112,008 and the royalties paid in 2016-17 totalled $5.8 billion.13
The Queensland Resources Council estimates that mining companies paid around $4 billion in state government payments (including land tax, payroll tax, stamp duty and royalties), in 2016-17.14
The Queensland Government reports that employment levels in the mining sector are increasing at a slow but steady rate, with mining now providing 3.6 per cent of all full time jobs in Queensland. Further:
Since 2011, mining has overtaken agriculture as a primary source of regional employment and is a critical income flow to many rural communities.15
In New South Wales, the third biggest mining state, royalties for 2016-17 were $1.6 billion and direct employment in mining was 27,600 people, with a further 108,000 in indirect jobs.16
Mining companies contribute in a number of ways to the regional communities and regions where they mine, mainly through:
providing employment to people who live in regional Australia;
bringing in workers from elsewhere who spend money in the community;
purchasing goods and services from local suppliers;
making voluntary social investments such as infrastructure projects and scholarship programs; and
paying taxes and royalties to various levels of government.17
To provide one example, Australia’s biggest mining company BHP stated that its contributions to Australia for the financial year 2016-2017 were $19.9 billion. This included:
employing more than 37,000 people, who earned more than double the national average wage;18
$50.4 million on social investments, including infrastructure, safety and education programs; and19
more than $5 billion in payments to the Australian government.20
The next chapter analyses the contributions made by various mining companies to regional areas in major mining states, and asks the question: how much of the wealth generated in the regions, stays in the regions?

  • 1
    Department of Industry, Innovation, Science and Resources (DIISR), Submission 29, p. 3.
  • 2
    DIISR, Submission 29, p. 3.
  • 3
    Allen Allday, IBISWorld Industry Report B, Mining in Australia, October 2018, p. 4.
  • 4
    Allen Allday, IBISWorld Industry Report B, Mining in Australia, October 2018, p. 22.
  • 5
    Allen Allday, IBISWorld Industry Report B, Mining in Australia, October 2018, p. 28.
  • 6
    Allen Allday, IBISWorld Industry Report B, Mining in Australia, October 2018, p. 4.
  • 7
    Allen Allday, IBISWorld Industry Report B, Mining in Australia, October 2018, p. 13.
  • 8
    DIISR, Submission 29, p. 3.
  • 9
    Minerals Council of Australia, Annual Report 2017, p. 2.
  • 10
    CSIRO, Submission 56, p. 4.
  • 11
    CSIRO, Submission 56, p. 4.
  • 12
    Deloitte Access Economics, Mining and METS: engines of economics growth and prosperity for Australia, March 2017.
  • 13
    West Australian Department of Mines, Industry Regulation and Safety, ‘Industry activity indicators’, at <www.dmp.wa.gov.au/About-Us-Careers/Latest-Resources-Investment-4083.aspx> accessed 23 October 2018.
  • 14
    DIISR, Submission 29, p. 4.
  • 15
    Queensland Department of Natural Resources, Mines and Energy, ‘Mining Statistics Update: June Quarter 2018’, at <www.vision6.com.au/em/message/email/view?a=23788&id=1185283&k=d2T3692V6tQFtbhJ4lF1c3ed7iikfOsUeUpuAD4AuNs> accessed 22 October 2018.
  • 16
    NSW Department of Planning and Environment, ‘Resources Infographics Snapshot (January 2018)’, at <www.resourcesandenergy.nsw.gov.au/media-events/news/2018/resources-infographics-snapshot-january-2018> accessed 23 October 2018.
  • 17
    BHP, Submission 49, p. 1.
  • 18
    Mr James Palmer, Asset President BHP, Committee Hansard, Mackay, 30 August 2018, p. 33.
  • 19
    BHP, Submission 49, p. 1.
  • 20
    Mr Palmer, BHP, Committee Hansard, Mackay, 30 August 2018, p. 33.

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