22/03/2016 - 15:51

From growth to grind, bar gold

22/03/2016 - 15:51


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Perth’s importance as a national business centre may have faded during recent months, but it’s a different matter in the inner suburb of West Perth, where several small mining companies have sprung back to life.

From growth to grind, bar gold
Bill Beament has led Northern Star Resources from penny dreadful status to Australia’s 114th biggest ASX-listed company.

Perth’s importance as a national business centre may have faded during recent months, but it’s a different matter in the inner suburb of West Perth, where several small mining companies have sprung back to life.

The difference between the somber mood of the CBD and improving sentiment just 1.5 kilometres west can be explained by what’s happening in Western Australia’s most important industry – mining.

At the top end of the sector, heavy job shedding among iron ore producers has accelerated from relatively low-grade positions into senior executive ranks, as the likes of BHP Billiton and Rio Tinto undertake radical overhauls of their business structures.

BHP Billiton has effectively downgraded the post of its senior representative in WA from president iron ore, which was a global role and included involvement with the ill-fated Samarco mine in Brazil, to asset president WA iron ore, which is a step above being a mine manager.

With that change in late February, Jimmy Wilson left BHP Billiton and Edgar Basto assumed the downgraded title.

The changes started last week at Rio with the announcement that Sam Walsh would retire as chief executive of the company on July 1. He’ll be replaced by Jean-Sebastien Jacques, based in London as Mr Walsh was, but with no connections to WA, whereas Walsh lived here for much of the latter stages of his career.

More is likely to happen in the Perth office of Rio Tinto because the head of its iron ore division, Andrew Harding, was once in charge of the company’s copper division when Mr Jacques reported to him – making the flip from boss to subordinate a bitter bill to swallow, especially after being overlooked for the top job.

What’s happening among the big iron ore miners is part of a switch from growth to grind. Gone are grand expansion plans that required a hefty allocation of the company’s capital; they have been replaced by a new role for WA operations as a less-than-exciting engine room that will provide the capital for expansion elsewhere, in other commodities.

Both big miners plan to grow their copper operations around the world, focusing on South America and Asia, while BHP Billiton is also keen to enlarge its oil division in the Gulf of Mexico and in waters off Trinidad in the Caribbean.

Meanwhile, in West Perth there are early hints of a revival, which can also be seen in capital movements that are the reverse of what’s happening in the CBD.

After five grim years of capital outflow, which has devastated smaller producers and explorers, the money is starting to flow back into the small end of the industry.

Gold companies are leading the way, as has traditionally been there role in WA, first in the 1890s rush that laid the foundations for the state as we know it, then in the 1930s when gold production became a way of surviving the Great Depression, and again in the early 1980s, when high rates of global inflation drove investors into gold.

Whether there is about to be a repeat of the 1980s is one reason why the $US gold price has been rising for the past six months, pushed even higher in Australian dollar by currency changes.

The new gold boom, and that’s what it is, has lifted the Bill Beament-led Northern Star Resources, based in Hay Street, from the status of penny dreadful; its shares were trading at around 5 cents just six years ago compared with $3.77 today, valuing the company at $2.3 billion and ranking it as Australia’s 114th biggest stock-exchange listed company.

Richardson Street-based Blackham Resources is another West Perth success story, last week raising $20 million to fund the redevelopment of the Wiluna gold project, which it has renamed the Matilda project, while the share price of Walker Avenue-based Breaker Resources has more than doubled in five weeks after encouraging drill results from its Lake Roe project east of Kalgoorlie.

Gold is not alone in breathing new life into the WA mining sector, with a number of commodities other than iron ore sparking investor interest and drawing in fresh capital, which is essential to restart the state’s depressed exploration sector.

Lucapa Diamond Company, with its head office in Subiaco’s Bagot Road, is technically not a West Perth company, nor is the favourite lithium stock on the ASX, Pilbara Minerals, which has its office in North Fremantle.

However, the point about the recovery under way among smaller companies is that the game has changed. One door is closing while another opens.

Opportunities for workers, executives, and investors in the iron ore sector are shrinking, with some of the slack being taken up by growth in areas that had largely faded from view but are now returning.


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