08/05/2007 - 22:00

Boom divides along state lines

08/05/2007 - 22:00

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Secession bobs up as a topic every time Western Australia goes into boom mode, and now is no different – though there is an emerging (and amusing) variation on the secession theme given the remarkable events under way in the mainland’s traditional laggard, South Australia.

Discovery is the big news from Adelaide. Not of any particular orebody, however, although a few are turning up. The discovery revolution in SA is that an entire state appears to have rediscovered the mining industry itself.

If, as Briefcase suspects, this revolution gathers speed and creates jobs and wealth as it has in WA, Queensland and the Northern Territory, a curious new divide emerges in Australia, perhaps triggering a national political struggle.

It will no longer be a case of the more heavily populated NSW and Victoria gawking at events (good and bad) in the resources industries of the north and west. It will be those two states (plus Tasmania) watching their economies slip rapidly behind the rest of the country.

This will cause problems over time because the wealth creation will be occurring in places that lack political control, especially in the areas of tax and industrial laws.

A glimpse of what to expect came when WA premier, Alan Carpenter, suddenly woke from his slumber (not working at the ABC now, Alan) to discover that the new industrial laws proposed by his own federal political party are not in the best interests of his state.

To give him the benefit of the doubt, Mr Carpenter was probably unaware of the implications of what he voted for at the Labor Party’s national conference a couple of weeks ago. Now he is, and he doesn’t like it because heavy-handed re-unionisation of the mining industry has the potential to kill WA’s iron-clad, nickel-plated, gas-fuelled golden goose.

In SA, a state once more heavily populated and much richer than WA, they are desperate for a slice of the goose – as Briefcase saw first hand last week when attending a Paydirt mining conference as a guest of the event's organiser, Bill Repard.

Whereas the west is tending to take its resources sector for granted (a worrying trend), SA is embracing it, warts and all. Uranium is not a dirty word in Adelaide. In fact, if the trend of discovery and development continues in its current course Adelaide will not only be Australia’s uranium capital, it has a real chance of becoming the world’s uranium mining capital.

BHP Billiton’s proposed $5 billion expansion of the Olympic Dam mine is the big one in SA, but there is a host of smaller projects, most with genuine development potential thanks to the sky-high price of uranium, and predictions of strong demand for decades to come.

From a WA perspective, watching 500 delegates drool over the prospect of instant wealth from hole digging is nothing new. Mining is old hat on this side of the country, and in the northern states.

But it is a trip of rediscovery for SA, where mining is rapidly replacing the nonsense of culture and food as a growth industry, and where even the premier, Mike Rann, has realised that manufacturing is a hopeless cause when Asia, especially China, can beat you every time.

Far better to be selling stuff to China than trying to compete with it.

•••

As good as this sounds for the economy of SA, the shift south of Australia’s explorers and miners also means that another, thinly populated state has signed up for fast-growth, courtesy of China’s appetite for minerals and metals at a time when south-east Australia is leading a push to return to the good old days.

It is NSW and Victoria that are leading the push to re-unionise the workforce, largely because they are watching the destruction of their manufacturing industries by China.

In a nutshell, this is the problem that threatens to create a great divide in Australia with the south-east corner (with its political clout through weight of voters) versus the rest of the country (with the wealth generating capacity).

If there is a common cause of what might become a very bruising battle, it is the China factor.

States that have embraced resources (WA, Queensland, the NT and now SA) will be the winners.

States that try to wind back the clock and force investment in manufacturing, or try to re-build a wall of tariffs, will suffer economically while making tax and IR laws that hurt the resource states.

•••

Olympic Dam, the pride and joy of SA, could become much more than that as the great divide widens.

So far we’ve seen a couple of warning shots from BHP Billiton and other mining companies about what re-unionisation might do to their future investment decisions.

The implied threat is that permitting a vexatious third party (unions) into the running of their businesses will not just add to day-to-day costs, but will introduce the much more expensive threat of production shutdowns, which can be fatal to a capital-intensive project.

In the case of the expansion planned for Olympic Dam, this is a project aimed at creating the world’s biggest mine. To put the size into perspective it is best to look beyond the annual planned output of 600,000 tonnes of copper and 15,000 tonnes of uranium and focus on the pre-mine work.

Before BHP Billiton starts production from the creation of a giant open pit at Olympic Dam it faces a three-year dig just to get to the orebody.

It’s those three non-productive years when the project faces its darkest union-organised walkout threat, just as the Perth to Mandurah railway was stung by workforce militancy at its pressure point, the cross-town tunnel.

Love them or hate them, the people who run BHP Billiton are not stupid. If they sniff a looming militancy issue at their $5 billion investment at Olympic Dam they will take their money and invest it elsewhere. Why? Because they can.

•••

Perhaps the most annoying of all in this emerging south-east versus north-west collision is that the south and east have done it so badly over the past decade.

The ‘other’ states have failed to tackle water shortages, failed to encourage their wealth-creating resource industries, failed to build new railways, and failed to expand their ports.

Railways and ports are perhaps the best example of how the south-east is trying to enforce their failed system on the west.

In WA’s Pilbara region, epicentre of the iron ore boom, the rail and port systems are working seamlessly because they are dedicated to company run projects. They are part of an overall production process.

In NSW and Queensland the process has broken down, with state governments blaming the federal government and industry blaming all layers of government for the disgrace of mine workers being laid off during Australia’s biggest resources boom.

And this we are told is the system we ought to have in the Pilbara because someone in Canberra reckons its good for competition.

The only beneficiaries of the NSW rail/port model are the coal miners of South Africa and India, which is where the mine jobs are going.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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