Bumpy ride for ex­plo­ration

The Weekend Australian - Travel - - Resources - Keith Orchi­son

WHILE the cur­rent re­sources com­modi­ties boom is drag­ging Aus­tralia’s largest-ever min­er­als and en­ergy ex­plo­ration ef­fort in its wake, there are also grow­ing signs that the way ahead may be in­creas­ingly bumpy.

Re­ports of the latest sur­vey of ex­plo­ration by the Aus­tralian Bureau of Agri­cul­tural and Re­source Eco­nomics have high­lighted the record-break­ing el­e­ments of the boom.

ABARE es­ti­mates that ex­pen­di­ture on the min­er­als and en­ergy search in the fi­nan­cial year 2006-07 will hit $4 bil­lion, the high­est in in­fla­tion-ad­justed val­ues since 1982-83. Ex­plo­ration jumped 56 per cent in 2006-07 com­pared with 2005-06, and is cur­rently 72 per cent higher than the an­nual search out­lay av­er­age for the past quar­ter cen­tury.

The level of ex­plo­ration is a big turn­around from the open­ing years of this decade when ex­pen­di­ture, in real terms, was well be­low the an­nual av­er­age since the 1980s.

Ex­plo­ration is crit­i­cal to min­er­als and pe­tro­leum de­vel­op­ment. The cur­rent soar­ing level of cap­i­tal ex­pen­di­ture in the sec­tors — now more than dou­ble the an­nual av­er­age out­lay for the past 25 years and fore­cast by ABARE to reach $30 bil­lion in 2007-08 — is un­der­pinned by dis­cov­er­ies made over a num­ber of years. The gov­ern­ment agency points out that the present search ex­pen­di­ture will need to be sus­tained if de­vel­op­ment is to con­tinue at a high level over the next decade.

How­ever, it is al­ready prov­ing dif­fi­cult from ex­plo­ration data col­lected by the Aus­tralian Bureau of Sta­tis­tics to work out how much of the present record search ex­pen­di­ture is at­trib­ut­able to ac­tual ex­plo­ration work and how much re­sults from sharp rises in in­put costs, such as labour and equip­ment.

Judg­ment of how well ex­plo­ration will fare in the years ahead is clouded by the large num­ber of fac­tors that can mar its progress.

Some re­late to ever-present is­sues: judg­ments on prospec­tiv­ity, which de­pend on the fre­quency and qual­ity of new dis­cov­er­ies, as well as the risk ap­petite of in­vestors when gov­ern­ment poli­cies shift or gov­ern­ment changes hands.

In a re­cent Com­mit­tee for the Eco­nomic De­vel­op­ment of Aus­tralia fo­rum on car­bon emis­sion costs in Syd­ney, trade-ex­posed in­dus­tries warned that in­vest­ment here rather than else­where al­ways hangs on com­pany as­sess­ments of risk. En­ergy poli­cies such as the pro­posed emis­sions trad­ing scheme, they said, would be a ma­jor fac­tor in at­tract­ing or re­pelling fu­ture in­vest­ment, or in main­tain­ing and ex­pand­ing ex­ist­ing de­vel­op­ments.

Com­mod­ity prices are ob­vi­ously a crit­i­cal fac­tor for min­ing and pe­tro­leum in­vestors. High oil prices as well as the grow­ing mar­ket for Aus­tralian LNG are driv­ing the cur­rent boom in pe­tro­leum ex­plo­ration. ABARE ex­pects the 2006-07 out­lay on the oil and gas search to reach $2.14 bil­lion, 64 per cent up on the pre­vi­ous fi­nan­cial year and the high­est in real terms since 1982-83. Ex­plo­ration for iron ore, gold and base met­als is ben­e­fit­ing from strong global de­mand and good prices for Aus­tralian pro­duc­ers.

The pos­si­ble ‘‘ bother fac­tors’’ for ex­plor­ers that are now al­ready clear in the mar­ket­place, as iden­ti­fied by ABARE, in­clude the in­creas­ing ex­pense of off­shore pe­tro­leum ex­plo­ration, the rise in search costs gen­er­ally, the tight­en­ing prob­lems of skilled labour avail­abil­ity and in­creas­ing com­pe­ti­tion for funds as in­vestors seek hun­dreds of bil­lions of dol­lars for new ven­tures.

ABARE notes that com­pa­nies are re­act­ing to the pres­sures, es­pe­cially in the min­ing sec­tor, by fo­cus­ing more on ‘‘ brown­fields’’ ex­plo­ration — search­ing ar­eas around ex­ist­ing or known de­posits where projects can be started sooner and have a low cap­i­tal ex­pen­di­ture re­quire­ment be­cause in­fra­struc­ture ex­ists nearby.

In the de­vel­op­ment area, the agency warns, some of the 45 min­er­als projects sched­uled for com­ple­tion in the sec­ond half of 2007 may not meet com­mis­sion­ing dates or bud­gets, re­flect­ing strong, in­dus­try-wide com­pe­ti­tion for skilled labour and equip­ment.’’

ABARE says there were 91 re­source sec­tor projects worth $43.4 bil­lion at an ad­vanced stage of plan­ning as of April this year, three fewer than it listed last Oc­to­ber, but even some that have reached the com­mit­ted stage was be de­ferred, mod­i­fied or even can­celled if there are sig­nif­i­cant changes in eco­nomic or com­pet­i­tive cir­cum­stances.

‘‘ This,’’ it adds, ‘‘ is par­tic­u­larly rel­e­vant in the cur­rent pe­riod of rapid project de­vel­op­ment in which the min­eral re­sources sec­tor is ex­pe­ri­enc­ing sig­nif­i­cant dif­fi­cul­ties in se­cur­ing suf­fi­cient in­puts, in­clud­ing ma­te­ri­als, equip­ment, skilled labour and pro­fes­sion­als.’’

ABARE sees the cost pres­sures at­ten­dant on com­pe­ti­tion for skilled labour and equip­ment as be­ing ‘‘ un­likely’’ to ease in the short to medium term. This means that the fea­si­bil­ity of many less-ad­vanced projects — of which there are 188 on its list at present — will need to be re-ex­am­ined, it says, with some be­ing de­ferred be­yond their op­ti­mal start-up dates in terms of mar­ket op­por­tu­ni­ties.

Ex­plo­ration: It is un­clear whether in­creased ex­pen­di­ture is a re­sult of greater ac­tiv­ity or greater costs

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.