Melbourne Mining Club Being lucky is not enough/media/bhp/documents/...2 Includes direct...
Transcript of Melbourne Mining Club Being lucky is not enough/media/bhp/documents/...2 Includes direct...
Melbourne Mining Club Being lucky is not enough
Don Argus, Chairman22 October 2009
Melbourne Mining Club, 22 October 2009 Slide 2
Economic Activity Contracted in All Countries
Global GDP Growth(%, Quarter-Over-Quarter, Annualised)
2005 2006 2007 2008 2009
Source: IMF World Economic Outlook Update October 2009.
(5)
(3)
(1)
1
3
5
7
9
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
WorldAdvanced EconomiesEmerging and Developing Economies
Melbourne Mining Club, 22 October 2009 Slide 3
Natural resources have and will continue to be central to Australia’s growth
1 Reference year for chain volume measures has been taken as 2007-082 Includes direct contribution of $85 billion and indirect contribution of $117 billion; includes oil and gas3 Compounding annual growth rate
SOURCE: Australian Bureau of Statistics 5204.0—Australian System of National Accounts, 2007–08, Table Gross Value Added (GVA) by Industry Australian Bureau of Statistics 5209.0—Australian National Accounts
Input-Output Tables 1998–99; team analysis
18
82All other
sectors
Mining2
All other sectors
4.0%
2.4%
Mining1
100% = 1,095 Billion
Australia’s GDPPercent1
Australia’s GDP growth 2006-09; Percent3
Melbourne Mining Club, 22 October 2009 Slide 4
Disputes double under new IR laws
Employers warn of rising costs20 October 2009
Australia is facing a number of important issues right now
Source: Press and web search.
3 August 2009
Economic stimulus packages6 June 2009
30 June 2009
Henry Taxation Review
Carbon Pollution Reduction Scheme (CPRS) debate20 October 2009
5 August 2009
Renewable Energy Targets
Melbourne Mining Club, 22 October 2009 Slide 5
Size of stimulus package depends on
– Actual and anticipated severity of recession
– Size of automatic stabilizers
– Degree of dependence on internal versus external demand
– Public debt level
– Political will
> 3%
1% - 3%
<1%
4.9%
2.8%
0.6%
6.3%
9.2%1.5%
1.3% 2.9%
4.5%
3.9%
1.2%
1.5%
1.4%3.5%
1.9%
4.2% 2.2%0.3%
4.7%
Size of economic stimuli varies greatly by country– OECD average: 3.6% of GDP
(a) Includes only new measures announced and not pre-budgeted expenditure.Source: IMF (March 2009) -The State of Public Finances; IMF (March 2009) – Staff Note for Group of Twenty.
IMF ESTIMATES (March ‘09)
Total size of discretionary fiscal stimulus measures announced(a)
% of GDP, G-20 countries (~80% of global GDP)
G-20 PPP-GDPweighted average
Overall: 3.6%
EU G-20: 1.9%
Melbourne Mining Club, 22 October 2009 Slide 6
41.5
17.5
15.2
10.4
4.5
89.5
0
20
40
60
80
100
EconomicStimulus
1
State Govt
Support
EconomicStimulus
2
AdditionalInfra-
structure
CleanEnergyInitiative
Total
Government spending
Federal Government GFC responseAnnounced in the last 12 months, A$ Billion
Australia’s debt obligations will riseNet debt as proportion of GDP, Percent
Source: Infrastructure Partnerships Australia, ‘Financing Infrastructure in the Global Financial Crisis’, March 2009; Australian Treasury, ‘Australia’s response to the global financial crisis’, Dr Steven Kennedy; Federal Budget, 2009-10, Overview; IMF World Economic Outlook, October, 2007 and July 2009
-8
-6
-4
-2
0
2
4
6
8
10
12
14
16
2007 2008 2009 2010 2011 2012 2013 2014
Pre-crisis estimate
Post-crisis estimate
Melbourne Mining Club Being lucky is not enoughDon Argus, Chairman22 October 2009
Melbourne Mining Club, 22 October 2009 Slide 8
Australia has abundant natural resources
Source: OECD Economic Survey of Australia 2006, table 1.1; BP Statistical Review of World Energy 2009.
Australia’s ranking of natural resource reserves by size
1Bauxite
1Nickel
6Coal
2Gold
3Iron Ore
1Uranium
20Oil and gas
Melbourne Mining Club, 22 October 2009 Slide 9
The natural resources sector is now our largest source of export revenuesTotal export revenues(a)
(A$bn)
118
746358412931
93898575676266
0
3060
90120
150
FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009
MiningManufacturing
(b)
(a) Free on-board value.(b) Includes oil and gas.Source: Australian Bureau of Statistics; 8417.0 Mining Indicators (released Aug 2009); 8229.0 Manufacturing Indicators (released Aug 2009); 5368.0 International Trade in Goods and Services (released Aug 2009).
Difference between mining(b) and manufacturing export revenues(A$bn)
26
(15)(23)
(17)(26)
(33)(35)(50)
(30)
(10)
10
30
FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009
21% 20% 25% 29% 29% 32% 42%
Mining proportion of total Australian exports
%
Melbourne Mining Club, 22 October 2009 Slide 10
Future demand for our minerals is strong
SOURCE: Global Insight; IMF; OECD; IISI; USGS; JFK
Crude steel intensityKg/capita (solid lines)
China/India steel intensity
Other steel intensity
GDP at 2000 PPP/capitaUS$/capita
0
200
400
600
800
1000
1200
0 5000 10000 15000 20000 25000 30000 35000 40000
India
China China and India account for 38% of world’s population
US (1900–2006)
Japan (1955–2006)
Taiwan (1970–2006)South Korea (1970–2006)
Melbourne Mining Club, 22 October 2009 Slide 11
Ensuring international competitiveness
1. Funding for large scale growth opportunities
2. Flexible and responsive labour market
3. Supportive policy and regulatory environment
4. Tax system
Melbourne Mining Club, 22 October 2009 Slide 12
Ensuring international competitiveness
1. Funding for large scale growth opportunities
2. Flexible and responsive labour market
3. Supportive policy and regulatory environment
4. Tax system
Melbourne Mining Club, 22 October 2009 Slide 13
Australian corporate bond market is small compared with US and UK
Debt Capital Market (DCM)(a) corporate deals as proportion of GDPPercent of real GDP (2005 base year)
Source: Dealogic; Global Insight (World Market Monitor)
0
1.0
2.0
3.0
4.0
5.0
6.0
1994 1996 1998 2000 2002 2004 2006 2008 2010
AustraliaAustraliaaverage 1.5%
United KingdomUnited States
US and UKaverage 3.3%
(a) Includes corporate bond and other notes, that is, excludes asset and mortgage backed securities; for non-bank, non-government deals
Melbourne Mining Club, 22 October 2009 Slide 14
11
52
89
48
0
20
40
60
80
100
1999 2008
Foreign direct investment is a crucial growth enabler
37 40 45 4963
8192
0
20
40
60
80
100
2001 2002 2003 2004 2005 2006 2007
+17% p.a.
FDI in Australian mining (A$bn)
Canada case example(Controlling ownership of mining assets, %)
Foreignowned
Locallyowned
C$131bC$67b
(a) 2008 figure extrapolated from published 2006 data to include Alcan acquisition.Source: ABS Catalogue 5352 Supplementary Statistics 2007 (released on Jan 30 2009), table 15a; Statistics Canada; Corporations Returns Act CANSIM 179-0004.
(a)
Melbourne Mining Club Being lucky is not enoughDon Argus, Chairman22 October 2009
Melbourne Mining Club, 22 October 2009 Slide 16
Ensuring international competitiveness
1. Funding for large scale growth opportunities
2. Flexible and responsive labour market
3. Supportive policy and regulatory environment
4. Tax system
Melbourne Mining Club, 22 October 2009 Slide 17
Mining jobs are of high value to the economy
56.7
(30)
(15)
0
15
30
45
60
Mining Manufacturing
(17.2)
Gross value added to the economy per employee(A$ thousand, FY2007)
Jobs created, 2001–07Thousands
Average annual income per employee(A$ Thousands, FY2006)
(a) Manufacturing subsectors per the Australian Bureau of Statistics include—food, beverage and tobacco; textile, clothing and footwear; wood and paper products; printing, publishing and recorded media; petroleum, coal, chemical, etc; non-metallic mineral products; metal products; machinery and equipment; and other manufacturing.
Source: Australian Bureau of Statistics; 5204.0—Australian System of National Accounts, 2006–07; 6291.0—Labour Force, Australia; Aug 2007, 8415.0 Mining Operations; Australia, 2005–06, 8221.0 Manufacturing Industry, Australia, 2005–06
515.5
93.2
0
110
220
330
440
550
Mining Manufacturing
47.9
85.4
0
20
40
60
80
100
Mining Manufacturing(a) (a) (a)
Melbourne Mining Club, 22 October 2009 Slide 18
Canada46
India69
31 Canada
UK25
Australia’s labour market is less flexible than that of many other countries
(a) Countries’ labour-employer relations were scored on a scale of 1 to 7 (where 1 = relations are generally confrontational and 7 = relations are generally cooperative), then ranked in descending order of score (b) Countries’ flexibility of wage determination were scored on a scale of 1 to 7 (where 1 = wages are set by a centralised bargaining process and 7 = wages are up to each individual company), then ranked in
descending order of score(c) Countries’ non-wage labour costs were estimated by adding the social security payments and payroll taxes associated with hiring an employee in fiscal year 2005 and expressing this sum as a percentage of the
worker’s salary, then ranked in ascending order of quotient. Note, this data from 2008-09 report.Source: Source: World Economic Forum, The Global Competitiveness Report, 2008-09 and 2009-10.
Japan10
US26
Brazil87
Cooperation in labour- employer relations(a)
(Survey rank)
Australia43
China60
Mexico75
Korea131
South Africa121
Germany24
India40
Non-wage labour costs(c)
(Survey rank)
South Africa4
US26
UK35
Australia85
Mexico89
Germany80
China126
Brazil123
46 Japan
Korea46
Flexibility in wage determination(b)
(Survey rank)
Japan11
US14
UK18
Canada29
Brazil110Australia90
China53
Mexico88
38 Korea
South Africa123Germany130
India44
Melbourne Mining Club, 22 October 2009 Slide 19
Ensuring international competitiveness
1. Funding for large scale growth opportunities
2. Flexible and responsive labour market
3. Supportive policy and regulatory environment
4. Tax system
Melbourne Mining Club, 22 October 2009 Slide 20
Increasing legislation and regulation increases complexity of doing business in Australia
Source: Banks Regulation Taskforce 2006, citing BCA submission; BCA ‘Towards a seamless economy’, 2008
60 Federal regulators and national standards bodies
40 Ministerial councils
1,300 Regulators across all 3 levels of government
35 Areas of state/state overlap in regulation
18 Areas of federal/state overlap in regulation
28 Taxes administered by more than 1 government
56 Business taxes administered in Australia
Total pages of legislation passed
0
10,000
20,000
30,000
40,000
50,000
60,000
1900s 1920s 1940s 1960s 1980s 2000s
Melbourne Mining Club, 22 October 2009 Slide 21
Ensuring international competitiveness
1. Funding for large scale growth opportunities
2. Flexible and responsive labour market
3. Supportive policy and regulatory environment
a. Environmental policy
4. Tax system
Melbourne Mining Club, 22 October 2009 Slide 22
Carbon prices could be volatile under the CPRS due to the variability of carbon demand
0
100
200
300
400
500
600
700
2010-2011projectedemissions
Free permits 2010-2011projected
emissions notyet covered by
permits
2010-2011reduction
target
Permitsavailable
Carbon emissions/permitsMillion tonnes
These emissions make up the demand for permits. Demand can vary widely depending on
external factors; e.g. cold winter increases energy industry’s demand for permits
These emissions make up the demand for permits. Demand can vary widely depending on
external factors; e.g. cold winter increases energy industry’s demand for permits
Excess demand for
permitsUnpredictable demand is likely to cause price volatility
Source: Carbon Pollution Reduction Scheme White Paper
Melbourne Mining Club, 22 October 2009 Slide 23
Cost per tonne concentrate(a)
(Indexed, 2005 = 100%)
Carbon, energy and labour costs will account for almost 75% of future cost base
(a) Open cast mine.(b) Assumes carbon cost of 20 Euro/tonne.Source: Infomine; The Economist Intelligence Unit; International Energy Agency.
100
122
151
198
0
20
40
60
80
100
120
140
160
180
200
220
2005 2010 2015 2020
CO
Energy
Labour
Other
2
Non-energy
(b)
Melbourne Mining Club, 22 October 2009 Slide 24
Ensuring international competitiveness
1. Funding for large scale growth opportunities
2. Flexible and responsive labour market
3. Supportive policy and regulatory environment
b. Access regulation
4. Tax system
Melbourne Mining Club, 22 October 2009 Slide 25
Our regulatory environment deters investment in infrastructure
Source: BHP Billiton analysis; Jerry Hausman analysis; Economic literature.
Access regulation reduces the attractiveness of investment
As access contracts are shorter than asset life, the access seeker has an option not to renew access, and so is insured at the expense of the investor
Seek access – enjoy positive returns
Do not seek access
Outlook at the expiry of access contract
Good
Bad
Seek continued access – keep profiting
Do not renew –avoid losses
Outlook at the start
of access contract
Good
Bad
Response from 3rd partyMarket outlook
Melbourne Mining Club, 22 October 2009 Slide 26
Asian players are completing projects at dramatically lower cost and shorter timeframes
500–1,000Asia
Developedmarket 1,450
33–65%
Asia
Developedmarket
Average investment(US$/kW, US$m/kbpd)
Average timeline (Months)
Coa
l-fire
d po
wer
pla
ntPe
trol
eum
refin
ery
Source: Company websites; Industry interviews; Internal analysis.
20–50%
30–36
45–60
8–15
15–60%
18–20
30–48
10–50%
54–60
Melbourne Mining Club, 22 October 2009 Slide 27
Ensuring international competitiveness
1. Funding for large scale growth opportunities
2. Flexible and responsive labour market
3. Supportive policy and regulatory environment
4. Tax system
Melbourne Mining Club, 22 October 2009 Slide 28
15.8
14.0
11.811.2
10.710.5
8.76.4
4.0
2.9
2.0
1.2
0.50.2
0.1
Factors perceived to be the most problematic for doing business in Australia
Restrictive labour regulations
Access to financing
Tax rates
Tax regulations
Inefficient government bureaucracy
Inadequate supply of infrastructure
Inadequately educated workforce
Policy instability
Inflation
Foreign currency regulations
Government instability/coups
Poor public health
Crime and theft
Corruption
From a list of 16 factors, respondents were asked to select the five most problematic factors for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.Source: The World Economic Forum ‘The Global Competitiveness Report 2009-2010.
Survey of the most problematic factors for doing business in Australia(% of responses)
Poor work ethic in national labor force
Melbourne Mining Club, 22 October 2009 Slide 29
2933
2015
14
2008
77 8
18
9
2015
1
2008
3088
2015
2
2008
120 44
1330
2015
1
2008
A$18b incremental export revenue benefit by holding share in 4 minerals to China & India
Seaborne iron ore(c) Alumina Coking coal(b) Copper(c)
A$18b in export
revenue(a)
Australia’s ‘fair share’ of futureChinese and Indian demand
(a) Assumes current prices, future share based on share of current Chinese imports only.(b) Australia’s share calculation based on global share of total coal (thermal and coking) production.(c) Chinese demand only.Source: Internal analysis; EIA; USGS; Metal Bulletin; LME; SBB; Platts; UN Comtrade; ABARE
Chinese and Indian demand by mineral(A$bn)
Melbourne Mining Club, 22 October 2009 Slide 30
Other economic and social benefits will be created in Australia
Estimated Chinese iron ore demand(Million tonnes)
Capturing 33% (Australia’s current share of Chinese iron ore imports) of forecasted growth would have significant benefits(a)
Additional annual export revenue A$14b
Additional annual GDP contribution A$34b
Additional annual tax revenue A$8b
Additional jobs created 35,000
2008
ForecastGrowth
2015
343 168
383
894
(a) At current prices.Source: Internal analysis; EIA; USGS; ABS Input-Output multiplier table, employment multiplier table, 5204.0 National Accounts; Federal Budget papers; Oz Forex; ABARE; UN Comtrade; Team analysis.
Australia’s ‘fair share’ of future China demand
Melbourne Mining Club Being lucky is not enoughDon Argus, Chairman22 October 2009
Melbourne Mining Club Being lucky is not enough
Don Argus, Chairman22 October 2009