Mineral exploration expenditure is booming but after a decade of downturn the state's drilling industry is straining under the pressure. Jim Hawtin reports.
It wasn’t long ago that many of Western Australia’s 120 drill rigs stood idle as their operators lost confidence and left the industry.
Today, however, exploration expenditure is soaring and the estimated 250 drill rigs in WA aren’t enough to keep up, while drillers eye huge wages and contracts of up to five years.
According to figures compiled by local resource information group Intierra for the WA Business News Exploration Survey, exploration expenditure of Australian Stock Exchange-listed explorers increased by about 84 per cent from 2003, when $252 million was spent compared with $464 million last year.
While the upturn is welcome, drillers say the lack of experienced operators is a huge issue for the industry and rising costs are dampening the boom conditions.
In the past year most of the state’s drillers have significantly increased their revenue. At the same time they’ve been watching costs rise and are paying more to hold on to experienced operators and train new ones.
Ausdrill’s Northwest business, with 10 rigs, turned over $20 million in 2003-2004, up 30 per cent on the previous year and almost 50 per cent from three years ago.
Ausdrill Northwest general manager Peter Wright, who is also the president of the Mineral Drilling Association of Australia, said he had not witnessed exploration activity of this magnitude for almost a decade.
“This is the best I have seen it for some time, probably since the mid nineties,” Mr Wright said.
The company drilled 278,000 metres of reverse circulation core last fiscal year with about 200,000 metres already drilled in the first half of this year.
Mr Wright said drilling demand in WA was mostly from the booming Pilbara iron ore industry, however there remained plenty of opportunity in the Goldfields, particularly from the rejuvenated nickel industry.
Despite the increased activity, which Mr Wright expects to continue for the next five years, including at Ausdrill Northwest’s two recently commissioned rigs worth $2 million each, he was reluctant to say business was booming.
As was the case during the previous downturn, he said, the drilling industry’s skills base, like those in most mining disciplines, had been significantly eroded and now posed a significant problem.
Compounding this was the poaching by large mining companies of the remaining experienced drillers, which was forcing contractors to dramatically increase their wages, Mr Wright said.
The MDAA is yet to formulate a plan to deal with this but it is a critical issue for members who are prevented from poaching from each other by a code of conduct.
The lack of experience is also a concern from a quality control pers-pective – an area in which the industry has invested significantly of late.
Brian Knight, technical marketing manager for Fortescue Metals Group, which ranked second in the survey spending $8.1 million last quarter, said quality was a concern because of the lack of experienced people.
“My biggest concern is around safety rather than production,” Mr Knight said.
But while clients see the drilling results, drillers are having difficulty ensuring they recognise the increasing input costs.
Mr Wright said his wages had increased 38 per cent in the past year.
In the past six months the price of steel (used in drill rods) had lifted 29 per cent, while the company was paying 98 cents a litre for fuel, about 20 cents more than in August 2003.
Yet margins still weren’t where they should be, he said, despite the drilling rates increasing by about 25 per cent in the past six months, according to Mr Wright.
The Association of Mineral and Exploration Companies executive officer, Justin Walawski, welcomed the increase in expenditure but said it highlighted the need for a flow-through share concept, which would help smooth the mining cycle as well as encouraging more investment in mineral exploration.
“Relative to previous highs, if this is as high as it gets during a time of such buoyant commodity prices we are in trouble,” Mr Walawski said.
He also raised concerns about the direction of the spending, saying just 11 per cent of expenditure by the top five in the survey was directed for WA.
