Investor caution meets capital flight

Having gained notoriety in the 1996 movie Jerry Maguire, the phrase ‘show me the money’ will be heard often, and loudly, in business in Western Australia in coming years as capital inflows become capital outflows and funds become harder-than-ever to raise.

Lower commodity prices are one reason why investors are cautious about WA’s resources sector, with likely asset sales by several US companies a potent warning about the declining appeal of the state, especially when compared with opportunities elsewhere.

US-based Cliffs Natural Resources is working towards the sale of its Koolyanobbing iron mine, and Apache Corporation is planning the sale of a 13 per cent stake in the Wheatstone LNG project because major shareholders in both companies want a greater focus on US opportunities.

Waving goodbye to some of the US funds invested in WA is one of the money problems dogging the state’s resources sector. There are others, however.

• The collapse of traditional resource banking, with many of the long-term suppliers of debt and trade finance quitting the sector because of tough new banking rules, which make exposure to commodities less attractive.

• The collapse of the new-float business, whereby initial public offerings have all but dried up; with the recent success of Stavely Minerals and Duketon Mining rare reminders of a once-vibrant source of capital.

• Wary Chinese investors who have been stung by the troubles at the Sino Iron and Gindalbie Metals magnetite projects and insulted by the comments of Clive Palmer, who is locked in a bitter legal battle with one of China’s biggest companies, Citic.

• A focus by BHP Billiton and Rio Tinto on rewarding shareholders with higher dividends rather than investing in new mines.

Despite a more constricted flow of money into WA, mining some deals continue to be done and projects developed.

The Baosteel-led takeover of Aquila Resources is a sign that not all interest has been lost, while the Gina Rinehart-led Roy Hill mine is a reminder that high-grade, low-cost, projects will continue to be developed, but not at the same pace as the past decade.