Supporting sustainable resources development

Building mining services clusters in Australia Ian Satchwell, Director 15 May 2012

Peru International Gold Symposium And Silver Forum

Outline

• Overview of the Australian mining sector

• Growth of the mining equipment, technology and services (METS) sector

• Building a sustainable local economic base from mining

• Case study: Kalgoorlie

• Case study: Darwin

• Case studies: Indigenous development

• Lessons from experience

2

Australia’s minerals and energy markets are strong…

Australian LNG production

Major iron ore exporters

1500

1000

1250

3

Major thermal coal exporters

Source: ABARES

…leading to the largest investment wave since the 1800s gold rushes*

HOBART

Western Australia

Northern Territory

South Australia

Queensland

New South Wales

Victoria

SYDNEY

CANBERRA

MELBOURNE

BRISBANE

ADELAIDE

DARWIN

BROOME

PERTH

WA & NT projects to 2018**: US$190 billion+

Queensland projects to 2018**:

US$90+ billion

Alumina, gold

Iron ore, uranium, nickel, gold

LNG, iron ore, infrastructure

LNG, mining

Base metals

Coal, CSG, LNG

South Australia projects to 2018**:

~US$25 billion

4 *Reserve Bank of Australia **committed and proposed projects

Coal, CSG, polymetallics

Western Australia case: investment will result in decades of increased production with lower volatility

* At ten year average prices

Historic and forecast production value* for WA’s key

resources

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2005 2009 2013 2017

Valu

e in $

M*

Gold

Iron Ore

Nickel

Oil/Gas

Alumina and Bauxite

Double 2011 value

Long-term contracted supply

$m

Source: ACIL Tasman analysis 5

Increased sustaining capital and

services

Trade & foreign investment

3

Service and technology sector

growth

2

It’s not only about mining: other growth drivers

Corporate shift to Australia

1

Agriculture and food sector growth

4

6

Mining and related sectors are bigger than most people think: changing the conversation

METS output is growing at 15 to 20% a year

• 4% of national output in 2002-03

• 8.4% in 2011-12

METS contribution to GDP

• 6.7% in 2010-11

• Est. 9.4% in 2012-13

Many METS are knowledge- and technology-intensive

Source: Australian Treasury and Ed Shan / Minerals Council of Australia 7

A new way of thinking about value-adding

Employment growth: driven by mining, but more than just mining jobs – Western Australia example

Source: CCIWA: Building Western Australia’s Workforce for Tomorrow, June 2010

0 50,000 100,000 150,000 200,000 250,000 300,000

Other

Administration and Support

Hospitality

Transport

Manufacturing

Education

Professional Services

Mining

Retail

Healthcare and Social Services

Construction

0 500,000 1,000,000 1,500,000

Non Mining and Construction

Mining and Construction

Current workforce (2010) Additional workers until 2020

8

Employment growth by industry sector 2010-2020

Australian mining employment multiplier is 3 – 4 Africa 7 – 10

9

Indirect Induced

Direct Local

manufacturer or service provider

Purchasing expenditure for local goods and services

Payments to employees

Subsequent backward expenditure for local goods and services along the supply chain

Income of supply chain employees

Taxes paid by suppliers to the Government

Household consumption as direct and indirect employees spend their income within the local economy

Taking a broad view: indirect and induced benefits

Economic output

Local dealer

Income of dealer’s employees Taxes paid by dealer to the

Government

Household consumption as direct and indirect employees spend their income within the local economy

Adapted from Saipem 2011

In Australia, for every $1 of mining revenue, 40¢ is spent on goods and services: Reserve Bank

Most mining occurs in regional areas, far from large cities…and close to, or on Indigenous lands*

HOBART

Western Australia

Northern Territory

South Australia

Queensland

New South Wales

Victoria

SYDNEY

CANBERRA

MELBOURNE

BRISBANE

ADELAIDE

PERTH

Alumina, gold

Iron ore, uranium, nickel, gold

LNG, iron ore, gold infrastructure

LNG, mining

Base metals

Coal, CSG, LNG

10

Coal, CSG, polymetallics

*60% of mining is on or near Indigenous lands

Case studies of development of mining services clusters and indigenous business

HOBART

Western Australia

Northern Territory

South Australia

Queensland

New South Wales

Victoria

SYDNEY

CANBERRA

MELBOURNE

BRISBANE

ADELAIDE

PERTH

Alumina, gold

Iron ore, uranium, nickel, gold

LNG, iron ore, gold infrastructure

LNG, mining

Base metals

Coal, CSG, LNG

11

Coal, CSG, polymetallics

•KALGOORLIE

•DARWIN

PILBARA REGION

KIMBERLEY REGION

12 12

Australian Industry Participation in Western Australia resource projects

• Proportional spending on the construction phase of oil & gas projects (but not

mining) has shifted towards overseas suppliers over the last 30 years

• But there continues to be a very high level of Australian industry participation

• CME/APPEA Local Content Study (2011)1:

• WA State Government Local Content Report – November 20112

• Publically announced local contracts July 2011 to March 2012 = A$15.5 billion3

Sector Construction Operations

Mining 86% 95%

Oil & Gas 58% 83%

Sector Construction Operations

Mining, Oil & Gas 74% 100%

Sources:

1: CME/APPEA Local Content Study 2011

2: Government of Western Australia, Department of Commerce, Local Content Report 2011 – figures for period 1/1/2011 though 30/9/2011

3: Media Statement, 8 March 2012, Minister for Commence, Hon Simon O’Brien

Kalgoorlie-Boulder, Western Australia

13

• KALGOORLIE

Map source: DMP

Kalgoorlie

14

• Mining town since 1900s – – Hosts gold, nickel sulphide and

nickel laterite – long life operations and evolving industry

• Mining is the dominant employer

• Region population 45000 (including 4500 Indigenous)

• Initially developed mining services because of remoteness

• Now a net ‘exporter’ of mining services to other locations – approximately 200 manufacturing & services sites

Kalgoorlie factors of success

15

• Local, long-life customer mining operations

• Good infrastructure: industrial land, roads, energy, water, community infrastructure

• Skilled resident workforce

• Education and training institutions: WA School of Mines, Vocational Training and Education Centre

• Inter-firm networking; minimal government intervention

• Firms cooperate to win large or multidisciplinary contracts

Darwin, Northern Territory

16

• Australia’s most northern and isolated city – Major service centre for mining,

oil and gas, defence and marine sectors

• Population 110,000 (~20% Indigenous)

• Mining services initially developed because of remoteness

• Now has a competitive advantage in mining and petroleum services

• Exporter of mining services to other locations, including Indonesia

Darwin factors of success

17

• Diverse market sectors with similar technologies: mining, offshore petroleum, LNG, defence, marine

• Good infrastructure: serviced industrial land, utilities, transport, community facilities

• Skilled resident workforce – but has needed supplementation

• Education and training institutions: university and VTEC

• Firms benefit from co-location, cooperation and networking

– RANms started as JV between small firms; now integrated service company owned by Wood Group.

• Industry Capability Network links customers and suppliers

• Government policies oriented to facilitating services business and investment

Darwin mining services: active role by government in promoting METS capability

18

Manufacturing

Basic Chemical and Chemical Product Manufacturing Polymer Product and Rubber Product Manufacturing Fabricated Metal Product Manufacturing Transport Equipment Manufacturing Machinery and Equipment Manufacturing

Transport, Postal and Warehousing

Road Transport Rail Transport Water Transport Air Transport Transport Support Services Warehousing and Storage Services

Electricity, Gas, Water and Waste Services

Waste Collection, Treatment and Disposal Services

Construction Heavy and Civil Engineering Construction Construction Services

Wholesale Trade

Machinery and Equipment Wholesaling Grocery, Liquor and Tobacco Product Wholesaling Other Goods Wholesaling

Accommodation and Food Services Accommodation Food and Beverage Services

Rental, Hiring and Real Estate Services Rental and Hiring Services

Education and Training Tertiary Education VTEC

Health Care and Social Assistance Hospitals Medical and Other Health Care Services

Case studies of development of indigenous business

HOBART

Western Australia

Northern Territory

South Australia

Queensland

New South Wales

Victoria

SYDNEY

CANBERRA

MELBOURNE

BRISBANE

ADELAIDE

PERTH

LNG, iron ore, gold, infrastructure

19

•KALGOORLIE

•DARWIN

PILBARA REGION

KIMBERLEY REGION

Indigenous business – Pilbara case study: Rio Tinto Iron Ore Business Development and Contracting Regional Standard

20

Includes: • Giving preference to Pilbara Aboriginal businesses • Improving the tender process • Regular information sessions on contracting opportunities,

contracting and procurement guidelines • Provide practical feedback to unsuccessful applicants Other measures by Rio Tinto • Identify and create opportunities for Pilbara Aboriginal businesses • Increase capacity of Aboriginal contractors through appropriate

contract opportunities, providing support while they gain experience • Introduce suppliers to Aboriginal contractors to enable discussions

around joint venture and sub contracting opportunities • Identify non-mining supply opportunities

Pilbara Aboriginal Businesses servicing Rio Tinto Iron Ore

21

Number of Aboriginal Businesses

– 104 Aboriginal businesses on the RTIO database

Categories – Civil and mining, plant hire and labour hire – Accommodation and catering

– Building trades, carpenters, electricians

– Building fabrication, fitout and refurbishment

– Fencing, landscaping, plant nursery and site rehabilitation

– Rubbish removal and recycling

– Bio diesel – Cross cultural awareness training

Contract Profile – Ranging from $50,000 to $100,000,000

Spending with Aboriginal businesses – A$120 million + a year on contracting, enterprise development and capacity building

Photo: Rio Tinto

Indigenous business – Kimberley case study: Argyle Diamond Mine

22

• Business Development Facilitator assists development of Traditional Owner businesses – and to ensure that they are able to compete for site-based contracts.

• Argyle has developed an 'inside-out' approach to business development and contracting within its site operations, helping indigenous staff to develop commercial opportunities from existing roles – for example, assisting grader operators to become earthmoving

contractors and waste management staff to set up waste management businesses

• Joint Business Development Taskforce looks for business development opportunities within the mine. – All site-based contracts worth more than A$250,000 are notified to the

Business Development Taskforce prior to the tender being let

Requirements for successful cluster building

23

• Diverse, deep and long life customer base

• Existence of market leading/large firms – both customers and leaders

• Existence of an entrepreneurial ethos amongst leading firms

• Networking and partnership relationships

• Access to innovation and R&D capacity – through regional institutions or other companies

• Existence of a skilled workforce (strong human capital base), plus training infrastructure

• Business infrastructure, and community infrastructure for workforces

• Access to adequate sources of finance

• Commercial orientation, but support from governments, industry groups and customers