AT first it seemed Western Australia, riding the mining boom, was digging a hole all the way to China.
AT first it seemed Western Australia, riding the mining boom, was digging a hole all the way to China. Now it seems we have just dug ourselves into a hole.
What a year it has been for the Western Australian resources sector; from boom to bust in a matter of days.
In reality, it was not an overnight development but a reaction to global conditions such as the US the sub-prime housing crisis.
Hartleys resource analyst Andrew Muir said there were systemic problems in the system that allowed debt to accumulate and snowball.
"Debt was wrapped up and bundled with other debt, which was then bundled with more debt, and nobody had responsibility for it," he said.
"Ultimately it led to a lack of confidence in the financial systems."
But life was good and nobody was listening to those sounding the warnings.
For the first half of this year Australia enjoyed the record mining boom.
One example of this extraordinary prosperity was the share price of Fortescue Metals Group, which peaked at $13.15 in June. Company head and local golden boy, Andrew Forrest, was officially Australia's richest man.
As the boom continued, regional towns from Esperance to Karratha swelled, with thousands of workers from interstate and overseas swarming in.
In July, a cost of living survey by Mercer revealed Perth had jumped 31 places in the list of most expensive cities to live.
"Strong economic conditions in the resource-rich states of Western Australia and Queensland, in particular, have continued to experience increased demand for goods and services," company spokesman Rob Knox said.
Surging forward in tandem with Australia was the Chinese economy and the ravenous appetite of its building and construction projects.
In July, Chinese steel company Sinosteel made an aggressive takeover offer for iron ore junior Midwest Corporation, paying a record price of $6.38 per share and acquiring 59.93 per cent of the company.
But WA's freight train economy was derailed from early October.
After the major shock of the US sub-prime crisis, industry and construction slowed and demand for Australian commodities waned.
Among the first signs of cracks appearing in the once rock-solid mining sector came on October 9, when Mount Gibson Iron announced Chinese customers had reneged on their steel contracts.
After making no secret of its takeover plans for Rio Tinto, BHP Billiton abruptly announced in late November it was discontinuing the bid.
The company wrote $2.2 billion off the value of its Ravensthorpe and Yabulu nickel projects, although it did commit to a further expansion of its iron ore operations.
Christmas may be a lean one for many in the Rio Tinto camp. With stock prices plummeting, the company announced in December it would cut 14,000 jobs worldwide and slash capital spending.
Meanwhile, WA-based mining companies Mount Gibson, Perilya, Grange Resources and Gindalbie Metals had all struck funding or merger deals with major Chinese groups in the past two months.
Consolidated Minerals, Oz Minerals, Norilsk Nickel, Mt Gibson Iron, Perilya and Mincor have closed down mines or scaled back production, leading to hundreds of job losses.
Alumina giant Alcoa has put its Wagerup refinery, which was estimated to have cost $2 billion, on hold, and Apache Energy has put its $900 million Reindeer gas project on the back burner.
Mr Muir said the lesson to be taken from the highs and lows of the year was that debt was bad.
"We've seen it in the examples of companies like Consolidated Metals, CopperCo, Matrix and others. They all had debt in common and it's become harder to refinance debt," he said.
"Banks are very risk averse.
"The other side to it is the fall in demand for commodities, which leads to a fall in their prices."
Mr Muir said things would get better, but not straight away.
"It will take some time, but how much time is harder to predict. People are saying things might pick up in the second half of 2009," he said.
One exception to the general rule has been gold, which has come off its high to perform steadily the year through.
"In Australian dollar terms, it has come off its value quite well," Mr Muir told WA Business News. "It has closed higher that what it was because the Australian dollar has fallen."
The share market has suffered on most fronts, but perhaps the best example of the heady heights of the boom, and the speed of the decline, can be seen in the share price for Fortescue Metals Group. Riding on the record high of $13.15 less than six months ago, the shares were worth $2.60 at the time WA Business News went to press