The big changes forced on the mining sector’s FIFO operations is a perfect example of how upheaval in business can present opportunities to improve when the crisis has passed.
What’s considered ‘normal’ will look different after Western Australia emerges from the coronavirus lockdown.
That doesn’t mean it will look worse, however, because the current setback is a perfect opportunity to rethink the way the state works.
WA has never been an easy place to govern because of its small population and vast distances, but a starting point for rearranging the furniture is ending the economically damaging practice of fly-in, fly-out.
Popular with mining companies because of a belief that flying workers to and from a remote location is cheaper than housing them (and their families), FIFO has always been flawed as a long-term way of developing the state.
The virus outbreak and the tough no-travel rules introduced by Australian governments have demonstrated that FIFO has limits that would not exist if a mine’s workforce lived nearby.
But the real issue with FIFO is that it has done nothing for the creation of communities in the north-west or Kimberley regions, where much of the state’s resources wealth lies.
The reason FIFO took off in the first place was that the big miners were able to convince the state government during a period of low commodity prices that, unless they could cut costs by ending a requirement to provide housing for remote workers, they would consider closing the mines.
With that gun held to the government’s head the result was a win for mining companies and a loss for the state, which is what some leading politicians warned would happen unless mining companies were forced to take regional development seriously.
The original State Agreements detailed exactly what a mining company had to do to protect its licence to mine material that belongs to the people of WA.
Not only was it a requirement that housing, roads and telecommunications be provided, but the mining companies were also expected to co-fund community centres and other activities.
The agreements covering the iron ore sector also required the miners to invest in value-added mineral processing to prevent them from high-grading their mines (a move designed to extend the life of the industry).
Over time those social commitments have been either forgotten or ignored by both sides of the deal. Successive governments on both sides of the political divide have agreed to watered-down commitments as the flow of royalties rose to become one of the state’s biggest revenue sources.
However, the reason the royalties rose is because mining revenues skyrocketed for the (predominantly foreign controlled) mining companies, shipping out huge dividends to match the tonnes of ore going overseas.
With the miners having been forced to alter FIFO arrangements due to the difficulties of moving workers across state borders, and even within WA, during the COVID-19 pandemic, now is a perfect opportunity to revisit State Agreements in the name of development.
Magnetite moves
Value-adding, which is something the big miners have tried to do in the past (and failed), will become an interesting discussion point in talks between the miners and the state government over the next year or so because of the example being set by Fortescue Metals Group.
A lot of humble pie will need to be eaten in the boardrooms of BHP and Rio Tinto if Fortescue, the rival they love to hate, demonstrates that it has cracked the value-adding puzzle.
What Fortescue is doing at its Iron Bridge project is an attempt to prove that low-grade magnetite ore can be turned into a valuable product at a fraction of the cost Sino Iron has managed at its multi-billion-dollar disaster, which has suffered massive cost overruns and completion delays.
As well as showing Sino how magnetite can add to the life of a mining operation and boost the average grade of what’s shipped out, the Fortescue experiment will be waved in front of BHP and Rio Tinto when they’re asked to have another go at doing what they promised 50 years ago.
Be prepared
It is not just mining that will need an overhaul after the virus passes, with two other items worth including on the restructuring list.
• A fresh look at a regional allowance or generous tax break to encourage workers and their families to relocate to regional centres.
• The building of a critical materials stockpile for the next time WA goes into isolation, as the Swiss have done with their national store of up to six months of essential foodstuffs and household goods.
As one report described it recently, the only shortage in Zurich supermarkets is customers. The shelves are full despite Switzerland being hit hard by the virus thanks to sharing a border with northern Italy.
