South Australia: digging out of the dark
South Australia's economy has lagged behind the rest of the country, but the state's burgeoning mining sector is a cause for optimism. Despite the challenges of the commodity downturn, the industry has been abuzz with activity in recent years, partly thanks to government incentives, and the likes of Olympic Dam and Australian PM Tony Abbott's uranium trade deal with India offer more possibilities for growth in the future.
For the South Australian economy, good news has been somewhat thin on the ground. The state, which encompasses some of Australia's most arid and sparsely populated outback regions, has economically lagged behind the rest of the country for decades, with growth particularly stymied by the collapse of the State Bank in 1991. South Australia (SA) still struggles with the second-lowest gross state product per capita in the country, and a stagnant housing market as well as declining automotive manufacturing and shipbuilding industries further add to the state's economic woes.
Against the wider backdrop of economic hardship, the mining sector has emerged as a cautiously optimistic bright spot in the darkness for South Australia's hard-pressed state government. According to a June 2014 government report, A$10.6bn in investment in recent years has grown South Australia's resource sector to a total of 20 operating mines, driving a four-fold increase in mineral production, predominantly from the state's rich deposits of copper, iron ore and uranium. A late 2013 study by the Resources and Engineering Skills Alliance estimated that the state's 40 new mining and associated infrastructure projects, expected to come online by 2030, will drive the creation of 35,000 new jobs in the sector over the next 15 years.
"The resources sector now contributes to nearly 40% of our exports and is creating jobs and opportunities for South Australians," wrote South Australia's minerals minister Tom Koutsantonis and infrastructure minister Stephen Mullighan in a joint foreword to the June 2014 report.
Another good sign for the sector came in late January this year, when Australian copper miner OZ Minerals announced it would relocate from Melbourne, Victoria, to South Australian capital and economic hub Adelaide, as well as collaborate on a $28m research partnership with the SA government to improve the quality of copper concentrates produced in the state. The move reflects the company's desire to be in closer proximity to its two main copper projects Prominent Hill and Carrapateena, the latter of which is one of Australia's largest untapped copper deposits, which OZ hopes to develop. "We will also collaborate with OZ Minerals to develop infrastructure in the state's Far North that could further improve the economic case for proceeding with Carrapateena," said Koutsantonis.
Encouraging exploration through data
The relative strength of South Australia's resources sector is no accident; the state's long-standing Labor government, led by Premier Jay Weatherill, made minerals and energy development its number one priority in a ten-point economic plan published a few months after its fourth consecutive victory in the tightly-contested state elections of March 2014. This high billing reflects an established commitment - a commitment on which the party campaigned in the election - to growing the local mining industry, the major component of which is the Plan for Accelerating Exploration (PACE) initiative, launched in 2004.
PACE has proven itself a success story for the Labor government, driving hundreds of millions in exploration investment and extra production in return for a relatively low upfront cost. Exploration is not just being incentivised with financing opportunities; the SA government is increasing available technical and geoscientific knowledge to reduce risks for miners exploring in the region. These efforts have been effective enough to see the state named Australia's best low-risk investment destination for the resources sector for five years running in ResourceStocks magazine's World Risk Survey.
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Investing in the acquisition of useful mineral data and making it publicly available is a core pillar of the state development department's efforts to speed up mineral exploration. "It is this approach that has stimulated exploration activity and new discoveries in other areas of the state and has been so effective in generating the current pipeline of resource projects," said Koutsantonis.
At the end of February 2015, the SA government announced that it had contracted GPX Surveys to carry out the largest single airborne survey ever undertaken in the state, covering 86,000km² of land along SA's western border. The 20-week survey is intended to investigate the "deeper underlying bedrock" of the massive Nullarbor Plain, with hopes riding high after the discovery of the Tropicana Gold and Nova Nickel-Copper deposits in similar geology in neighbouring Western Australia.
The airborne survey is the most recent example of the government's data strategy, with others including the start of construction in January of the new A$32.2m Drill Core Reference Library, "a massive data bank carved in stone" according to Koutsantonis, which, when opened in early 2016, will host more than 7.5 million metres of drill core material in one place. And in December the state government released a 3D model of the Eastern Gawler Craton geological province, allowing explorers to "visually query and interpret data in three-dimensional views at any scale they like".
Commodity downturn: closures and low morale
Despite the government's success attracting miners to explore and set up shop in South Australia, keeping them running is another matter, especially against a backdrop of the wider commodity downturn. The state's iron ore miners have not been immune to that commodity's record-low prices, as demonstrated by the recent mothballing of Arrium Mining's Southern Iron mining project, one of its two mines in SA. The suspension of operations has brought about 580 job losses, with analysts at Citi predicting more Australian iron ore mine closures before the end of 2015.
The tumbling price of copper, meanwhile, has taken its toll on OZ Minerals' aforementioned Prominent Hill project, with 140 recent layoffs reported to the media by Greg Warner, northern areas organiser at Australia's Construction, Forestry, Mining and Energy Union.
Mining analyst Peter Strachan told the ABC in February that although exploration is going ahead, development beyond the exploration stage is proving tricky, partly due to excessive red tape from the government. "There has been a lot of good exploration going on," he said. "The bottleneck seems to appear when companies show up and say, 'Oh look, we've discovered a resource and we've mapped it out and drilled it out, now we'd like to move forward to development.'"
Of course, these issues are in no way exclusive to South Australia. Commodity price volatility poses an existential threat to mining projects everywhere. But given the vulnerability of the state's situation and the vital role that the mineral sector plays in an economy that has struggled to diversify, the need to find new avenues for mining growth is perhaps more pronounced.
Olympic Dam and uranium demand: opportunities for expansion
While Weatherill and his cabinet will be hoping the government's proactive approach to encouraging exploration will yield dividends in more new mining projects over the next few years, there are specific avenues that could prove particularly rich sources of industry growth.
Olympic Dam, a poly-metallic mine that predominantly produces copper, uranium and gold, is Australia's largest mine. Its copper deposit is the sixth-largest in the world and it hosts the world's largest uranium ore body. The mine, which currently employs 3,500 people and sits on total reserves estimated at north of $1 trillion, is central to SA's mining industry and wider economy, and an expansion of this massive facility would provide a significant boost to both.
Olympic Dam owner-operator BHP Billiton cited high costs and declining commodity prices when, in 2012, it pumped the brakes on a large-scale open-pit expansion of the mine that would have reportedly cost $30bn. But the company maintained its intention was to revisit the idea of expansion when cheaper production methods emerged to make it financially viable, and in the second half of 2014 BHP executives indicated that they were pursuing trials of cheaper and more efficient heap leaching processing methods, as well as mulling expansion options.
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In September the state government, undoubtedly realising the importance of such a project, waived the need for BHP to complete a new environmental impact statement for the trials. The expansion that the trials might facilitate would be carried out underground and be of a smaller scale than its suspended predecessor project, but would still undoubtedly involve a multi-billion-dollar investment and provide a major source of new employment. And BHP has left the door open for a more extensive open-pit expansion in the future. "Nothing that we're going to [do] here is going to inhibit the option to pursue eventually, at some day, an open pit development if that makes sense," BHP chief financial officer Peter Beaven told The Advertiser in November.
Copper provides the majority of Olympic Dam's revenues, but its uranium deposit is significant on a global scale and South Australia's uranium reserves represent a large chunk of the world's total. Low demand since a post-Fukushima Japan shut down its nuclear programme has depressed uranium prices, but that didn't stop the new, A$120m Four Mile uranium mine opening its first stage last summer.
Still, SA's uranium industry won't reach its potential unless it can find new customers, and a new export deal reached by Australian Prime Minister Tony Abbott with Indian PM Narendra Modi, under which Australian mines would provide uranium to fuel India's nuclear energy sector, could help rally prices and drive growth. But the deal remains to be sealed as it faces objections on non-proliferation grounds, with the Australian Conservation Foundation reportedly considering mounting a legal challenge. It remains to be seen whether the treaty will survive to properly revive uranium assets in South Australia and provide a shot in the arm for a broader mining industry that bears a significant chunk of the state's economic health on its shoulders.