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Legislative Council - Fifty-First Parliament, Third Session (51-3)
2008-11-12 Daily Xml
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Question Time

MINING INDUSTRY

The Hon. D.W. RIDGWAY (Leader of the Opposition) (14:32): I seek leave to make a brief explanation before asking the Minister for Mineral Resources Development a question about the current global financial crisis in relation to our minerals industry.

Leave granted.

The Hon. D.W. RIDGWAY: A couple of weeks ago, we saw that Boart Longyear, the drilling exploration company, had retrenched 55 staff from its Adelaide operation, which was the first indication that the world global financial crisis would hit home here in South Australia. On 27 October or shortly thereafter, I received a copy of the Credit Suisse metals and mining outlook. It is headed 'Mining capital expenditure set to collapse' and it states:

Event: We think some $50 billion of mining capex is at risk of being delayed in 2009 if the credit crisis persists...Most of the growth was scheduled for 2010 and beyond, which is now increasingly unlikely...The last time the mining industry froze capex in 1998, it took five years for it to return with any confidence.

The report states that it expects that about $75 billion would be scheduled to be spent next year in the world, and that now it looks like there would be only $50 billion to be spent. It continues:

This is likely to then delay a further $150 billion that is scheduled between 2010-12...Typically once a project is deferred it takes much longer for it to be kick started...In reality much of the growth of Western miners was planned for 2010 and beyond and this now looks increasingly unlikely.

My questions to the minister are: what level of employment losses does the minister expect in our resources industry as a result of the global financial crisis; and what strategies has his government put in place to help our very important rural and regional communities tough out this crisis?

The Hon. P. HOLLOWAY (Minister for Mineral Resources Development, Minister for Urban Development and Planning, Minister for Small Business) (14:34): I think it is a little bit early to predict the outcome of the current—

The Hon. D.W. Ridgway: You're always like that with your head in the sand when you see the tsunami coming.

The Hon. P. HOLLOWAY: Well, there is a tsunami coming, but the leader is asking me to say how much damage the tsunami is going to cause. You can see it coming from out there in the ocean, but he is asking me how much damage it will cause. We know, of course, that the global credit crisis will have an impact on our industries, and it will have an impact on employment. I think that affects everyone around the world, but there are many people who earn a lot more than I do who are out there making predictions about what impact there may or may not be. I do not really know what benefit we will get from speculation. Regardless of the matter of how prolonged or bad it might be, we do know that credit will be extremely difficult to obtain, and that will have an impact on some of our projects.

In relation to mining, obviously one of the key impactors on the health of our mining industry will be the health of the economy of countries such as China and India, in particular. If you read the economic papers, the real debate at the moment is about to what extent Chinese growth will depend on internally generated demand and to what extent it will depend on exports of consumer goods—to the United States, in particular. If China's growth—which has been anything between 10 and 15 per cent in past years—were to slow significantly to below 6 per cent or thereabouts, one would obviously expect that to have a significant impact on the demand for commodities world wide.

It is encouraging that just recently China announced an expansion package, and many economic commentators have made the point that China depends on internal consumption for about 80 per cent of its growth. However, having said that, one knows that no country, even the largest, will be immune to the current credit squeeze.

Certainly there are opportunities in the mining industry. China is responsible for about 40 per cent of the world's consumption of commodities, particularly the major metal commodities, and clearly it will be in a better position to be involved in and fund such ventures than if we were to rely on the conventional banking system. So one thing this government is doing in the minerals sector—and, of course, it has been doing it for some time—is talking to those companies that would have an interest in investing within the state to ensure that we have the maximum chance of getting the key investment necessary to keep the economy, particularly in the resources sector, moving. If there is this constipation (if you like) within the world's financial system, with the banks too frightened to loan to other banks, then clearly the only option is to look for other means to ensure that finance is provided to enable such projects to go ahead.

Apart from those general comments, I do not think there is much point in speculating on how bad it will be. As I said: yes, there is a tsunami coming, but as for how much damage it will cause I think we should perhaps wait until it has hit. We will be doing as much as we can to ensure—

The Hon. D.W. Ridgway interjecting:

The Hon. P. HOLLOWAY: No; we will not have our heads in the sand. What we will do is try to clear as many people off the beach as we possibly can before it hits.

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