10/10/2006 - 22:00

Energy policy will end in tears

10/10/2006 - 22:00

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It can take time for really big mistakes to be recognised for what they are. Alan Carpenter’s two energy bloopers, in the name of winning votes at the next state election, are classic example of time bomb blunders which will cost Western Australia dearly

It can take time for really big mistakes to be recognised for what they are. Alan Carpenter’s two energy bloopers, in the name of winning votes at the next state election, are classic example of time bomb blunders which will cost Western Australia dearly in the future.

But, if Captain Grumpy thinks he can get away with it because there’s no way of measuring how silly he has been with his no uranium mining stance, and his gas tax (dressed up as a local industry subsidy), then he’s very mistaken.

States that make life hard for business always pay a price, over time, as can be seen in WA’s neighbour, the economic basket case called South Australia.

In the 1970s, an era Briefcase remembers well, SA also fell for the squeeze-business approach to politics – and is only now, slowly, crawling out of the mess.

Back then it was the misguided political management of premier Don Dunstan, and his successors, who set out to please the people by painting the state a deep shade of green, trying to pick business winners in the form of manufacturing, and effectively killing most of the mining industry.

With a growth rate half that of WA, soaring unemployment, stagnant property prices, and the mass closures of once-great manufacturing companies, SA has been forced to recognise that government cannot pick and choose which industries it attracts, or rejects.

Business, quite simply, migrates to the places where it is most welcome and, over time, leaves the places where it is not welcome.

Right now, WA is flavour of the month and Mr Carpenter reckons he can pick and choose who does business here – as part of the game called populist politics.

A similar game was played when Mr Dunstan was SA’s premier. The environment was the number one cause, mining was seen as a polluter rather than an employer, and wine and food were the favoured industries, along with manufacturing.

The end result of Mr Dunstan’s experiments can be seen in the sleepy hollow called Adelaide – and in a fascinating revival which, if it continues, will rank as one of the world’s more interesting conversions.

After two decades in the doghouse, SA is back on the growth trail. How? By attracting the very industry it rejected in Mr Dunstan’s day – mining.

It’s early days yet in SA’s revival, but there is evidence mounting to show that the state has become more business friendly than WA.

Rather than persist with a totally discredited anti-uranium policy, SA welcomes uranium exploration and has just approved its third uranium mine, with more to come. China has jumped on the SA recovery by choosing it as the site for its first direct investment in uranium exploration. In time, SA will become ‘uranium central’ with an export industry that, in terms of energy created, might one-day rival WA’s gas-export industry.

But, as they say in the advertisements for steak knives, there’s more. SA’s pro-industry, pro-mining stance includes direct government payments to explorers. Small, at around $3 million a year in cash subsidies, this ‘hurt money’ from the government is working miracles in the mineral search. It is, in effect, the equivalent of a welcome mat.

Over the past two years the growth rate in SA’s exploration business has been the fastest in Australia. Admittedly, SA is coming up off a low base, but the trend is there for even the blind to see.

Rather than looking at ways to hurt its mining industry, SA is working feverishly to attract it. As well as rising exploration there are: a revitalised port system designed to handle increased exports from an expanded Olympic Dam copper/uranium mine; the new Prominent Hill copper/gold mine; the first mineral sands mine at Mindarie; new uranium mines; and the promise of a world class zircon project near Ceduna.

It’s the zircon that might finally cause WA politicians to wake up because when Iluka gives the green light to its Eucla Basin project it will be because it is withdrawing from somewhere else – and that somewhere else is WA.

It is unlikely that Briefcase, or Mr Carpenter, will be around to see the chickens come home to roost for WA. Like Mr Dunstan, time will take its toll – and it’s the next generation that will pay the price for today’s short-sighted political expediency.

•••

Speaking of the migration of an industry as important to WA as titanium minerals and the zircon industry to SA, there is another part of the mining industry facing a tricky future, again.

Gold, despite what the spruikers claim (remember Angus Geddes with last week’s “gold price in the thousands” tip) is a very troubled metal – as shown in two examples.

First, there are the raw numbers, as posted on the London Bullion Market, where the price of gold has tumbled to $US560 an ounce, down $US75/oz, or 11 per cent, during the past month, and down $US165/oz, or 22.7 per cent since this year’s price peak of $A725/oz on May 11.

So much for the Geddes tip.

Now comes a comment from the man who runs the world’s biggest gold mining company, Greg Wilkins, chief executive of Barrick Gold. After a luncheon address in Perth last week, Mr Wilkins was asked for his future gold price tip. Being a smart chap, he declined.

But, what he did do was provide a number at the other end of the equation. What he sees as the global gold mining industry’s critical break-even gold price, and that was $US500/oz.

Local media types who lack an understanding of business missed Mr Wilkins’ point. He’s not worried about the price of his commodity – because he knows he can’t control it. But he is very worried about the cost of production, and the rampant cost inflation running through gold, and most other segments of the mining sector.

While gold bugs are celebrating (with full blinkers on) the fact that their favourite metal has risen from the depths of $US275/oz a few years ago, they are overlooking the fact that cost increases have kept pace with the price – and are now closing the gap.

•••

“The public have an insatiable curiosity to know everything. Except what is worth knowing. Journalism, conscious of this, and having tradesman-like habits, supplies their demand.” Oscar Wilde

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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