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Northern Exposure

Australian Mining Magazine – Aug 2011

Hugh Tobin, Director, North Australia Project, Institute of Public Affairs

Despite the hype surrounding the mining boom. Australia is fast becoming an unattractive destination for new major projects.

Once the first choice for investors and buyers of commodities from iron ore to copper, emerging nations are now looking to places like Brazil and Guinea for raw materials.

Recently the ABS released data that indicated unadjusted mineral exploration expenditure in Australia fell 8.3% in March 2011.

The Association of Mining and Exploration Companies has said that this shows Australia’s mining exploration investment is beginning to move offshore.

In addition to the proposed new taxes targeting the resources sector, the Foreign Investment Review Board and its powers add to the risks and costs associated with major investment in Australia.

A recent Ernst & Young report titled Ungeared for Growth found that Chinese strategic investors shifted their focus last year from Australia and Canada to other investment destinations such as Brazil, Ecuador and parts of Africa.

Mining giant Xstrata recently announced it is closing its smelting operations in north Queensland.

It has warned that mining in Queensland is in danger of becoming globally uncompetitive due to rising labour costs and red rape.

This came just weeks after Anglo American Mining CEO, Cynthia Carroll, warned that the introduction of a carbon tax could place parts of her company’s $4 billion of investment ill mining projects in jeopardy.

The competitive freight advantage chat Australia has enjoyed over its geographically distant competitors in South America and Africa is being steadily eroded.

Three years ago, Australia had a U5$40 a tonne cost advantage over Brazil, now it is only U5$12 a tonne.

The introduction of very large ore carriers, capable of carrying 400,000 tonnes of iron ore from Brazil to China will erode this competitive cost advantage even further.

Australia has substantial future growth opportunities in exporting resources to our neighbours.

But this economic potential will be squandered unless there is a significant policy shift by government. Australia needs policies encouraging sustained investment and growth in mining for future generations.

Special Economic Zones (SEZ) have supported economic growth throughout the world by streamlining regulation and lowering taxes to promote economic growth in a region.

The introduction of an SEZ in Northern Australia has widespread public support.

Galaxy poll results released by the IPA in June indicate that 60% of Australians support low taxes to stimulate economic growth in the north.

Most of Australia’s mining industry is located in areas which suffer skills shortages and scarce infrastructure. There are also high costs of living, rough living conditions and a lack of available housing for those who live there.

A Northern Special Economic Zone, comprising Northern Western Australia, the Northern Territory, and Northern Queensland will allow Australia to make the most of our natural mineral wealth and will reduce some of the problems that exist for people living in these regions.

There are too many competitors in the global resource market for us to sit on our hands and assume the resource boom will continue without support.

Instead of taxing the resource sector further, Australia should create a Special Economic Zone to ensure we remain globally competitive.