Mining boom to leave gap in growth

We have lived through a period of historically high terms of trade, with strong mining investment and economic growth, yet we have seen four years of negative cash balances amounting to an accumulated $172 billion in budget deficits. Picture: AP/BHP Billiton Source: AP

THE Australian economy faces a pothole in economic growth because non-mining investment is not adequate to fill the gap left by the fast-fading resources investment boom, an independent forecaster warns.

The total value of investment projects across the nation fell by $24.7 billion in the first three months of the year to $928.9 billion, says Deloitte Access Economics in its latest Investment Monitor.

After several years of booming activity, mining investment now stands just 0.8 per cent higher than a year earlier.

"It is difficult to shy away from the conclusion that Australia's high growth component of investment will soon be fading, with little prospect of an equivalent alternate investment driver coming through," Deloitte Access Economics partner David Rumbens says in the report.

"That's a bit like having Usain Bolt lead out your relay team, passing off to Homer Simpson for the second leg."

The value of definite projects - under construction or committed - rose by 1.5 per cent in the March quarter to a total $451.6 billion, the report released today shows.

But the value of planned projects - under consideration or possible - in the forecaster's database dropped 6.2 per cent to $477.3 billion.

Back in December, the forecaster predicted the outlook for mining investment depended on whether the green light was given in 2013 for the top 10 pending projects.

"With a quarter of the year gone, the largest of these - Woodside's $43 billion Browse LNG project - has been shelved, and the remaining nine seem no closer to going ahead," Mr Rumbens said.

Otherwise, large LNG projects continue to dominate the investment program with the value of oil and gas projects under way in excess of $200 billion.

Mr Rumbens believes there is potential growth for infrastructure investment that supports mining production, such as railways, port projects and electricity.

But he thinks other investment is likely to be steady rather than achieving much growth.

He says non-resources manufacturing investment has all but dried up, with little prospect of a resurgence while the high Australian dollar hurts the sector's competitiveness.

Non-residential building projects are also showing little signs of life, with new approvals still below the peak seen prior to the 2008-2009 global financial crisis.

"Low interest rates will provide support but the overall environment for office and retail demand still remains somewhat dour," Mr Rumbens said.

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Headwinds pick up for Aussie mining

In its latest review of the global economic outlook, the International Monetary Fund says China's growth this year is now likely to clock in at 8 per cent. Picture: AFP Source: AFP

THE world's most influential economic group has cut its growth forecast for China as the headwinds for Australia's mining sector intensify.

In its latest review of the global economic outlook, the International Monetary Fund says China's growth this year is now likely to clock in at 8 per cent.

The fund has cut 0.2 percentage points from its previous forecast hard on the heels of official Chinese figures that revealed an unexpected downturn in economic activity so far this year.

It came as BHP Billiton delivered a production update for the first quarter that was generally weaker than expected.

Poor weather and maintenance work dragged on the miner's iron ore and petroleum divisions but the company said it remained on track to hit its full-year production targets.

BHP, the world's third largest iron-ore producer, revealed yesterday it had dug up 40.2 million tonnes of the commodity in the three months to March.

While the tally was 3 per cent higher than it was for the same period a year ago, it was down 5 per cent on the previous quarter.

Petroleum production, the company's second-biggest earnings division, weighed in at 55.42 million barrels of oil equivalent - 2 per cent below the same period last year and 7 per cent down on the previous quarter.

BHP's update follows a bearish production snapshot by rival Rio Tinto, which slashed its copper output by close to one-third following a massive landslide at a copper mine in the US.

Tumbling commodity prices, renewed debate about the health of the Chinese economy and warnings of a pending oversupply of iron ore are all weighing down mining stocks.

The ASX 300 resources index, which tracks the country's mining and energy companies, has plunged 17.2 per cent since the middle of February.

BHP's share price has fallen almost $7 over that time to $32.06 while Rio's is down about $17.50 to $54.59.

In its report, the IMF cut its forecast for global growth this year, from 3.5 per cent to 3.3 per cent, citing the eurozone's continuing economic woes among other problems.

"The potential impact of external risks on Asia remains considerable," the report said.

While the IMF cut its growth projections for China, the group's deputy director of research, Jorg Decressin, said he was not concerned "in any major way" about a hard landing there.

The IMF also predicts Australia's growth will come in at 3 per cent this year and 3.3 per cent next year - numbers broadly in line with Reserve Bank of Australia and Treasury projections.

john.dagge@news.com.au

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NSW mining benefits overstated: report

Source: The Australian

RESOURCE companies are exaggerating the projected economic and employment benefits of coal mining and gas projects in NSW, a report has found.

Mining companies are also downplaying the health and environmental risks of these projects, a report by Economists at Large and the Australia Institute said.

The report analysed seven development proposals across the state, and found models used to assess impacts on employment include unrealistic assumptions such as there being no limits on the supply of skilled labour.

Damage to native vegetation and the rise of greenhouse gas emissions are also underestimated in most of the proposals.

The report, released by the Nature Conservation Council of NSW (NCC), said the projects need to be thoroughly assessed because they fail to highlight several issues such as health costs, and also contain inconsistent figures or analysis.

"Given the serious risks to human health, water and the natural environment, the use of false or misleading economic data to support development applications is simply immoral," NCC campaigns director Kate Smolski said.

"This report clearly shows why the government must overhaul the planning system to ensure that economic claims made by developers are thoroughly assessed by an independent body."

AAP svm/apm/

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China eyes off Aussie mining

PwC mining leader Jock O'Callaghan says China needs to find ways to meets its urbanisation targets. Picture: AFP Source: PerthNow

PwC mining leader Jock O'Callaghan says China needs to find ways to meets its urbanisation targets. Picture: AFP Source: PerthNow

CASHED-UP Chinese state owned companies are tipped to be the big winners in a year of consolidation within the mining industry after last year's disastrous procession of billion dollar write-downs by some of the mining giants, a new report warns.

The PricewaterhouseCoopers mining report said there will be no repeat of last year's mega-mergers as the mining giants instead focus on delivering shareholder value by developing existing assets.

Commodity prices are expected to stabilise in 2013 but with Chinese demand strengthening as its economy continues to urbanise and meet its 7.5 per cent growth targets iron-ore, copper, coal and nickel are tipped to be among the big winners over the coming years.

PwC mining leader Jock O'Callaghan said commodity prices will continue to be volatile over the short term but remain on an upward trajectory over the medium to long term.

"China still needs the raw materials to meet its urbanisation targets of putting 12 million people a year into new cities that haven't even been built," he said.

"As a result there will be no slowdown in the in the appetite from off-shore to buy-up Australian mining companies or even take minority stakes. This is driven from China but Indian and Japanese companies are also looking for deals."

Almost $US110 billion was spent on mergers and acquisitions last year, but excluding the $54 billion blockbuster merger of Glencore and Xstrata this was the lowest value since 2009 and the volume of deals was down to its lowest level in eight years.

Chinese companies were responsible for only 9 per cent of the deals in 2012 but a greater risk appetite and the countries relentless drive for urbanisation is expected to see Chinese M&A activity rise sharply in the coming five years.

Mr O'Callaghan said the next 12 months will also likely see the majors such Rio Tinto and BHP Billiton sell-out of some of their non-core assets following a series of billion dollar writedowns last year.

"The main game will continue to be the need to reduce transaction risk, boost shareholder value and demonstrate discipline about where and how capital is allocated," he said.

"Miners across the world are operating in a global market where risk factors such as cost and resource nationalism are on the rise and where buying and selling specific assets have political consequences. But good deals find a way to get done."

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Mining sector 'will recover'

THERE are still good times ahead for the mining sector, says Australian and UK-listed fund manager Henderson Global Investors.

London-based Henderson has more than $100 billion of assets under management.

Henderson's chief executive, Andrew Formica, is in Australia to visit the company's Australian shareholders and to officially launch the group's investment management business in Australia: Henderson Australia.

Mr Formica said there was strong demand from investors in Australia for global equities and property, which was Henderson's specialty.

He said it was wrong to think that there was no longer good investment potential in the mining sector.

"We are going to get a recovery under way in the next couple of years (in mining)," Mr Formica said.

China's commitment to an economic growth target of 7.5 per cent in 2013 and the ongoing recovery in the United States' economy would support mining companies.

Mr Formica said mining companies had also realised that they have to be more disciplined in their capital expenditure.

There had also been a raft of leadership changes among the five biggest mining companies in the world in the past six to 12 months, providing the companies with fresh eyes to look at things while understanding past challenges.

The pharmaceuticals sector also looked attractive given that the global population was ageing, life expectancy continued to rise, and people would have to spend much more on healthcare.

Mr Formica said equities in general were quite attractive at the moment, especially in the US, where the economy was starting to gain some traction.

"The Americans have always shown themselves to have the ability to grow and re-invent themselves," he said.

European stocks should not be ignored on the basis that the economy in Europe was weak.

"The stocks in Europe are very diverse, very global businesses," Mr Formica said. "I definitely encourage people to look there."

Mr Formica said China was also potentially an attractive investment destination, given that China's new leadership team would want to make its mark and kick-start a new investment plan.

Legislative reforms freeing up the financial services sector also made China worth a look.

After China, the next most interesting investment destination was Latin America.

Mr Formica said Chile, for example, had a well-developed compulsory superannuation system and good economic growth rates.

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