Colin Barnett will be hoping his encouragement of Africa’s mining sector doesn’t come back to bite him.
Killing sharks might turn out to be less politically sensitive for the premier, Colin Barnett, than the message he plans to deliver in a speech this week (February 3) at Mining Indaba, Africa’s biggest mining conference, in Cape Town.
The shark cull, while generating lots of noise from hard-core professional protestors, is probably not a vote loser, and certainly will not be if another swimmer is attacked.
Encouraging the development of Africa’s mining industry, which is already a potent competitor for Western Australia’s mining industry, will be far less popular as voters digest the message Mr Barnett is attempting to sell.
According to comments made before his scheduled keynote talk at Mining Indaba, Mr Barnett does not see the development of the African mining industry as a threat to WA.
“I think Africa is more of an opportunity than a threat,” he said in one pre-trip interview.
Over time – and assuming WA companies can win work in Africa against super-cheap Chinese competition and desperate European service providers trapped in their no-growth region – the premier might be right.
But over the next few years, as mineral prices stay low thanks to high levels of excess supply, it is highly unlikely that voters in WA will appreciate the premier talking up a rival, especially as one of the major local employers is already under pressure to invest in an African mine that will compete with its Australian mines.
Rio Tinto, which operates the biggest collection of iron ore mines in WA, has been warned by the government of Guinea that it’s time to stop talking and start building the $US20 billion Simandou project.
Guinea’s new mining minister, Kerfalla Yansane, told Western media in his first interview last week that he expects Rio Tinto to adhere to a rigorous schedule at Simandou.
Mr Yansane, who will probably also make an appearance at the politician-heavy Mining Indaba, expects a final agreement on Simandou to be reached within the next three months, and for work on the mine to start soon after.
“We are working with our partners to finalise an investment framework, which is supposed to have provisions, including a time-line. This time-line will be very rigorous,” he said.
Rio Tinto, like all mining companies, is under pressure to deliver bigger profits and fatter dividends, with shareholders not particularly concerned about where the profits are generated.
If, for example, Simandou can produce cheaper iron ore than Rio Tinto’s Pilbara mines, or simply produce at roughly the same cost, then it will be developed and it will take market share off the company’s WA mines.
The theory of helping Africa develop its mining industry is admirable from the perspective of assisting a region that has been abused by foreign interests for centuries.
The question that will soon be asked of Mr Barnett and the London-based chief executive of Rio Tinto, Sam Walsh, is whether investing in Africa is really in WA’s best interests.
Significantly, Mr Walsh and other Rio Tinto leaders have been silent on the question of Simandou and how it will affect the company’s capital investment plans in WA, or how iron ore from the mine will fit into an already well-supplied world market.
Mr Barnett is more vocal with his argument that developing African mines will generate opportunities for WA-based service firms, such as engineers and other consultants.
It is an interesting position but it is worth wondering how far anyone in business should go in encouraging competition. The feel-good factor might be high – until jobs disappear.
US gas demand
Fading as competition for WA industry, rather than rising as previously feared, are exports of North American gas into Asia.
High levels of domestic demand for gas during the recent cold spell has pushed the price of gas in the US back to 2010 levels of more than $US5 per million British thermal units.
Warmer weather and rising rates of production should result in a retreat in US gas prices over the rest of the year, but the burst of high prices will create political uncertainty around the question of exporting gas to Asia when it has become the biggest single cost advantage the US has over its rivals.
The same argument about retaining gas for local consumption is being led by Andrew Liveris, the Australian-born chief executive of the big US chemical maker, Dow.
Mr Liveris feels so strongly about the gas issue, and the need to encourage industrial investment, that he has floated the idea of switching from business to politics after he ends his tenure at Michigan-based Dow.
There are two points to consider in the gas question.
Firstly, that sometimes it doesn’t make sense for a country to sell its best assets when they can do more if used at home.
Secondly, that the same high level of domestic gas demand in North America means that sourcing gas for high-cost liquefaction at a realistic price before shipping it across the Pacific as LNG has just become a lot harder.
That doesn’t mean LNG from the US and Canada LNG will not win market share in Asia, but it does mean a lack of cut-throat competition, which is what Japanese and Chinese gas customers are hoping for.
Spinning wheels
Every business eventually hits a growth ceiling, that point when the days of easy profitability fade and the going gets tougher – not that some of the runaway leaders in the internet space expected it to happen so soon.
However, that’s what seems to be happening at Carsales.com.au, one of the biggest winners from the internet revolution, luring car buyers and sellers away from once traditional newspaper classified advertising.
The wheels at Carsales started to wobble late last year as the volume of advertising on its site slipped, triggering a round of investment tip downgrades.
Those ‘sell’ notices have rocked Carsales on the ASX, with the stock plunging by 14 per cent from $10.30 early last month to recent trades at $8.83 – a reminder that all good things eventually come to an end.
