BHP's scrapping the Olympic Dam mine expansion won't affect SA property investors much: Terry Ryder
The single biggest quality underlying the success of mining companies has been their ability to keep their eye on the long-term objective.
They have resisted the tendency of business generally towards short-termism and knee-jerk reactions to temporary setbacks.
This is why miners have enjoyed such massive profits recently. Many of the big projects that are now delivering income were conceived and advanced in the shadow of the GFC.
Grant King, managing director of Origin Energy, said it best with this quote in 2008: “We make investment decisions in assets that have economic lives of 30 years or more. And so, cycles that play out over a year or two are basically irrelevant. We are fundamentally driven by the long-term view.”
Curiously, a notable exception to the resources ethic of long-term thinking is BHP Billiton. It’s the nervous Nellie of the sector. In 2008, for example, it opened a Western Australian nickel mine that cost $2.2 billion, then shut it down within 12 months of opening when it got GFC jitters (putting 1,800 people out of work) and sold it for $370 million.
The recent closure of the Norwich Park coal mine in Queensland’s Bowen Basin has all the hallmarks of a dummy spit, after not getting its way in union negotiations. In similar vein, BHP took its bat and ball and went home when Moranbah landlords asked more rent than it felt it should be paying for houses.
And now we have the Olympic Dam backflip. Half a dozen years of planning and preparation tossed aside because of a few blips on the global radar screen. The people running this enterprise seriously need to develop a spine and some long-term vision.
The question is how this will impact on the South Australian economy and various property markets. The answer is: not nearly as much as commentators are implying.
The SA economy has been chugging along quite nicely in recent years without any contribution from an Olympic Dam expansion, and it will continue to do so.
Media, in its simplistic way, would have us believe that the $30 billion expansion was the only show in town, but this is far from true.
The state’s resources sector has been in a significant growth phase for many years, and this will continue. Iron ore mines are in various stages of development on the Eyre Peninsula and elsewhere, including several multibillion-dollar enterprises. There’s a $1 billion expansion of Prominent Hill mine, among other projects, happening near Coober Pedy, and the $2 billion Hillside mining venture on the Yorke Peninsula.
A far bigger potential for SA than Olympic Dam is the prospect of mining operations in the Woomera Prohibited Area following last year’s joint federal-state announcement. The resources in this area and the potential investment are far greater than BHP Billiton’s piddling little affair at Roxby Downs.
There are multiple export port projects in various stages of planning and development around the state, billions are being invested in wind farm developments, and further billions are circulating thanks to the defence contracts being handled in Adelaide.
The other thing likely to overlooked as media over-dramatises the impact of the BHP Billiton decision is that the company isn’t scrapping the development of its Roxby Downs resource. It says it’s going to seek less expensive ways of doing it.
So something major will happen at Roxby Downs, just not as big or as soon as was originally planned.
Terry Ryder is the founder of hotspotting.com.au and can be followed on Twitter.