Spiralling construction costs have taken a mounting toll on planned resource projects in Western Australia. but the deferral of major projects could produce a good result by extending the state’s economic boom.
Spiralling construction costs have taken a mounting toll on planned resource projects in Western Australia. but the deferral of major projects could produce a good result by extending the state’s economic boom.
Alcoa and Minara Resources indicated last week they would not proceed in the short term with planned expansion projects worth $2 billion.
Chamber of Commerce and Industry of WA economist John Nicolau said the deferral of big projects could smooth the current investment boom and did not change the state’s positive outlook.
“There is so much potential investment and there is no way we can do it all,” he said.
“We just don’t have the capacity in terms of labour and materials.”
Mr Nicolau said he was still expecting strong 10 per cent growth in business investment for at least the next two years.
Access Economics also has a positive view on WA’s economic outlook but has sounded a note of caution.
“As good as WA’s long-term prospects are, its outlook is also likely to be volatile,” Access said.
“When times are good, WA motors at speed, and right now times are bloody beautiful.
“But many of today’s positives were seen as recently as 1997, so keep an eye out.”
The deferral of Alcoa’s $1.5 billion expansion of its Wagerup alumina refinery was relayed by its US chief executive Alain Belda in a teleconference last week.
“The Wagerup expansion is going to basically be done when this construction boom in Australia goes through and prices get back to normal,” Mr Belda said.
“It’s not the right time to be building a refinery in Australia.”
Alcoa’s Australian managing director Wayne Osborn said the company remained committed to the expansion “but has always said that the economics of the project must be right”.
He said Alcoa would continue with the environmental approval process.
The higher costs Mr Belda referred to were (indirectly) quantified last week by Minara Resources, which said the capital cost of expanding its Murrin Murrin nickel project had ballooned by 30 per cent to $450 million.
Minara said a pre-feasibility study had demonstrated that a satisfactory return was still achievable, despite the cost blow out, but the company would not proceed until it improved production at its existing plant.
Further evidence of the cost increases was provided last month, when BHP Billiton said the cost of its Ravensthorpe nickel mine had increased 28 per cent over the past 18 months to $1.8 billion.
In a similar vein, Portman said recently the cost of expanding its Koolyanobbing iron ore mine had increased by 37 per cent over the past year to $75.3 million, though this partly reflected design changes.
The cost increases have not deterred a plethora of aspiring miners from pursuing major new projects.
Midwest Corporation announced this week it had partnered with China’s Sinosteel Corporation to study the feasibility of its $1.5 billion Weld Range and Koolanooka iron ore projects.
Meanwhile, State Development Minister Alan Carpenter said this week that he would like to pursue the development of an aluminium smelter in WA.
“An aluminium smelter in Western Australia has been mooted for decades but so far it has eluded us because the economics have never been quite there,” he told an industry conference.
“But I think that Western Australia can have the right configuration of factors for an aluminium smelter and I would like to see the global aluminium industry re-consider that proposition."
