September 2007

Presentation by

John Roberts, President

SA Chamber of Mines & Energy

Infrastructure Challenges for

the South Australian

Resources Sector

September 2007

• An industry representative body

• Funded by industry for industry

• The peak body for Government/Industry interaction/collaboration

Who is SACOME?

September 2007

• Influence Government policy

• Promote the industry

• Assist industry

• A Resources Industry Strategic Plan

What does SACOME do?

September 2007

• Four mines

• Exploration average ~ $30m p.a.

• Employment, 2600 people

• Industry not considered very important to SA

In 2000…..

September 2007

• 20 major mines

• Employment, 10,910

• Exploration, ~AU$250m p.a.

• Export Revenues, 38% AU$4.2 bn

• Over 30 exciting Mineral and Energy Projects

Snapshot 2012

September 2007

South Australian Mineral Exports Mineral Exports are the largest single sector contributing to South

Australian exports, at over a third (38%) of total state exports of $11.2bn

Minerals, 38%

Minerals

Petroleum

Agri & Food

Wine

Machinery

Road Vehicles

Other

(All figures in Millions; 10/11 Data)

- $4,225 mil

- $111 mil

- $3,113 mil

- $1,223 mil

- $445 mil

- $334 mil

- $1,668 mil

September 2007

Project pipeline

(Courtesy of DMITRE)

September 2007

• India

• Tata Group / Geodynamics

• Reliance Group / UXA Resources

• Japan

• JOGMEC / Minotaur

• Mitsui Corp / Uranium One

• South Korea

• LG Internaional / Scimitar Resources

International Partnerships

September 2007

Chinese Partnerships

• CITIC Group / Southern Gold & Marathon Resources • Sinosteel / PepinNini • Baotou Iron & Steel Group / Centrex Metals • Heilongjiang Resources Limited / Havilah Resources • Focus Investment and Tangshan Xingye Industry and Trade Group / WPG • Jilin Tonghua Iron & Steel (Group) Mining Co / IMX Resources • Taifeng Yuanchuang International Development Company / IMX Resources • Tongjiang International Energy Co. Ltd / Altona Resources • CNOOC (Beijing) Energy Investment Co. Ltd / Altona Resources • Rizhao Steel /OneSteel Shanxi Haixin Iron & Steel Group Co. / OneSteel • Hebei Jinxi Iron & Steel Co. / OneSteel • Wuhan Iron and Steel Corp. (WISCO) / IronClad Mining • Liuzhou Iron and Steel Co Ltd / IronClad Mining • OM Materials / IronClad Mining • Jianqyin Huaxi Steel Co. / Lincoln Minerals Ltd • Chengdu Di’ao Mining Industry Energy Resources Co Ltd / Panda Mining • China Non-Ferrous Metal Industry’s Foreign Engineering & Construction Co. /

Terramin Australia • South Australia Ludi Mining Pty Ltd.

September 2007

Mines and Resource Value

$0

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$4

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$10

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$18

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50 1980

1985

1990

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2012

2015

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Bill

ions

Number of Mines (LHS)

Resource Value (RHS)

Global Financial

Crisis

Record Commodity

Prices

Projected

Mines, &

Resource Value

Olympic Dam Expansion

Projected No. of Mines

Years 1980-2020

Exploration Licence Coverage

South Australia’s Mineral Exploration Upswing

March 2011

September 2007

• 23 Mines by 2015

• 40 Mines by 2020

• +14000 new jobs

• Infrastructure Spend, > $59bn by 2020

• Upstream petroleum & geothermal expenditure to reach $800+ million by 2020

• Revenues, est. $7bn+ p.a. within 5+ years

The Future…..

Fraser Mining Survey

Report 2012

• South Australia ranked 19th in the Policy Potential

Index

• Ranked 3rd behind NT & WA, down from 1st last year

• Ranks first in quality and accessibility of its

Geological database

• SA ranks 31st on Infrastructure access and

availability, and mid-ranked in Australia, up from last

position last year (compared to other States).

(McMahon, F., & Cervantes, M., ‘Survey of Mining Companies 2010/2011’, Fraser Institute, Canada, 2011)

• 2007 - SACOME commissioned high level resources

industry infrastructure study through Connell Wagner, SCM &

Prof Dick Blandy

• 2009 – RESIC commissioned resources infrastructure

demand study through Aurecon (final report recommended that more

detailed work was needed)

• 2011 – RESIC commissioned Parsons Brinkerhoff to build on

the work done in 2009 with a more detailed study which

allowed data to be used in SARIG and also offered

recommendations to Government.

Infrastructure Demand Studies

• Mining Sector demand for:

• Power will increase 5 fold

• Water and Gas will treble

• Road, rail & port usage will treble

• Own staff will double

• GSP growth rate to reach 5.5% (2.75% historic)

• Major planning and coordination required (RESIC

established)

SACOME Infrastructure Study

– Key Findings (2007)

• SACOME study in 2007 made the following

recommendations:

-Facilitation needed to improve coordination and processes; (RESIC formed in 2007 as a result of this recommendation)

- Need to facilitate development of shared infrastructure;

- Provide investor certainty and facilitate assistance

- Migration, off-shoring and investor strategies developed

- Greater Government and industry participation to focus and

improve investor certainty;

- Clear pathways - leverage off BHP Billiton’s requirements

- Set effective infrastructure finance framework

Infrastructure Study 2007

• RESIC study - through Aurecon:

Power demand - (installed load) will increase, needing

approx: 1,480 MW by 2019;

-SA is likely to require additional baseload generation capacity

within 2-3 years to deal with future demand.

Water demand - across the South Australian Resource

industry will increase from approximately 43,000 ML in 2010 to

approximately 130,000 ML in 2019.

Road transport - the next 10 years is forecasted at

approximately 24 million tonnes inbound and approximately

100 million tonnes of finished product outbound across SA.

.

Infrastructure Study 2009

• RESIC study - through Aurecon:

Rail demand - forecasted rail freight inbound and

outbound movements will increase, reaching over 365 million

tonnes in total over the next ten years, an average of

approximately 35 million tonnes per annum.

Ports – a number of resource companies indicated the

requirement of deep sea Port facilities at Port

Bonython for the export of bulk materials

Infrastructure Study 2009

Aurecon was not required to undertake any analysis or interpretation of the

data and only reported on the survey information captured. Aurecon

undertook a limited review of the data provided prior to compiling it into five

GIS maps (power, water, gas, road, rail) representing four different time

periods.

Recommendation – that a more detailed study of the

infrastructure demands, capacities and the potential clustering

and network opportunities for these input and output

infrastructure types is required to allow a more detailed analysis

of commercial opportunities to develop and share

infrastructure.

Data from this analysis will assist RESIC in determining and

prioritising their activities in planning future infrastructure.

Infrastructure Study 2009

RESIC – through Parsons Brinkerhoff:

• $59 billion worth of projects (best case) or $39

billion if project probability factored in;

• Report made recommendations that were

presented to Government;

• Recommendations currently under public

consultation process.

Infrastructure Demand Study 2011

Infrastructure Demand Study 2011

- Recommendations

1) Infrastructure corridors & Utility Hubs • The South Australian government to facilitate development of infrastructure

corridors and utility hubs through a master planning process known as a

Infrastructure Demand Study (IDS)

2) Development of deep-sea ports, rail and road logistics • The South Australian government of three new deep sea ports that are able to

be served by appropriate rail and road infrastructure, sufficient to support the

future minerals and energy projects in SA.

3) Electricity infrastructure • A nominated case manager to be appointed to work with local mineral resource

companies, the Australian Energy Regulator, and with ElectraNet.

• Assist in accelerating a 275kV augmentation on Eyre Peninsula by the end of

2016 or earlier to meet industry needs.

Infrastructure Demand Study 2011

- Recommendations

4) Water resources • The Department for Water undertake detailed mapping to identify groundwater

resources and potential extractable volumes at key identified areas in SA. As a

priority the key area of the Eyre Peninsula, is to be finalised by 2012.

5) Government facilitation of investment in resources infrastructure • The Department for Manufacturing, Innovation, Trade, Resources and Energy

work with geographically grouped resource and energy proponents to:

• assist with making companies’ infrastructure projects investor-ready;

• assist in packaging investment ready information for prospective investors;

and

• assist in connecting investment ready packages and resources and energy

project proponents with likely infrastructure investors.

• Electricity - uncertainty over available capacity remaining on

existing transmission networks and timing on augmentation plans for

new network infrastructure (est 1,200MW peak demand by 2017)

• Water - uncertainty over water supply quality, availability and

sources (est. 170 GL pa required by 2017);

• Logistics – concerns about rail gauge inconsistencies, capacities

and uncertainty over interconnectivity bet. Proposed projects and import

/ export developments;

• Ports – lack of deep-water bulk commodity port facilities to meet

forecast capacity (highlighted as major issue) expected 120 mtpa

outbound by 2017 and beyond.

Infrastructure Demand Study 2011

• Economic modelling firm Econtech estimates that the

national ‘gap’ between infrastructure demand and supply in

2005 amounted to $1.15 billion for electricity, $10 billion for

roads, $8.06 billion for rail, $2.6 billion for gas, and $3 billion

for water.

• The Australian Energy Market Operator has found that NSW

may face an electricity supply deficit of 182 MW by 2015-16;

Queensland of 34 MW by 2014-15; and Victoria and South

Australia will face a combined deficit of 17 MW by 2013-14.

• PwC report claims that by 2050 Australia will require an

additional 173,348 kilometres of roads needing investment to

increase by $2.5 billion every year until then.

Source: Infrastructure Finance Reform – Issues paper July 2011 – Infrastructure Australia

National Demand & Supply

Challenges

CHALLENGE:

Finding the appropriate role for

government and the private sector and

how the risks of infrastructure projects

can be efficiently shared.

CASE STUDY:

Need for development of a bulk

commodities port in the Upper Spencer

Gulf

EYRE

BRAEMAR Iron Ore Mine, Project,

Prospect, Occurrence

Potential Utilities Hub

Iron Ore

Export

Plan

Estimated Resource

EYRE = 2,400 Mt

NORTH = 1,000 Mt

BRAEMAR = 2,000-4,000 Mt

NORTH

Iron Ore Mine, Project,

Prospect, Occurrence

Potential Utilities Hub

Iron Ore on the Eyre

Pt. Spencer

Pt. Bonython

• Port Spencer to be fully funded privately

• Upper Spencer Gulf port needed - Port Bonython identified.

• Yorke Peninsula - last of ports required.

• Recognise that other solutions are being used or developed (eg IMX & Pt Adelaide, IronClad & Lucky Bay, Pt Pirie). Sub-optimal solutions ?

Ports Timing

• Approx. $600m CAPEX

• Requires approx. 15mtpa of iron ore throughput over 30 years

• Assumes port charges of approx. $10/tonne

Port Bonython scenario

Port Bonython : Status • The Flinders Ports-led consortium won preferred bidder

status to develop the project in late 2008;

• The feasibility study confirmed that a harbour could

viably built; the long term tonnage required to justify a

deep water port, but initial throughput is problematic;

• In March 2012, SA Government awarded major project

status to the project (deems the project to be of major environmental,

social and economic importance to the State under section 46 of the

Development Act 1993);

• If approved, construction would take about 2.5 years to complete,

employ about 400 workers, ready for export in about 4 to 4.5 years

from now.

What if the bankable tonnages were estimated (in the short to medium term) to be considerably lower that the 15mtpa required ?

• Project would be unlikely to be funded by private financing without proven bankable tonnages

• Unlikely to be any Infrastructure Australia funding

• SA Govt does not have spare $ in budget over at least next 2-3 years

Hypothetical….

A case for Govt intervention ?

• Should the government intervene to correct a market failure, to

stimulate development and increase production ?

• Regulatory Intervention

- Minimise bureaucracy in relation to infrastructure

projects.

- Facilitate land re-zoning.

• Financial Intervention

- Cash upfront

- Equity position

- Underwriting

• Facilitation

- Collate information on projects.

- Facilitate or co-ordinate discussion by industry and

infrastructure providers.

Financial Intervention ?

• Equity Position

- Enter into a Public-Private-Partnership to develop

critical infrastructure projects.

Case Example: Oakajee Port and Rail Project

• WA government to contribute $279 million (additional

$399 million from Federal Gov. fund) for government

owned port infrastructure.

• Recover funding via. user charges.

• After a 50 year lease Oakajee Port & Rail (OPR) will

cease control of the private infrastructure and revert to

the State.

Financial Intervention ?

• Underwriting

- Underwrite a part of the financial or operating risk

to ensure feasibility of the project.

If needed..................

The State Govt could underwrite a percentage of unsecured

throughput at a discounted rate of, say, $7/tonne (there are

no operating fees without throughput)

Max. $35m p.a. ?

The Benefits of Investment

• Provide certainty to Resource projects of accessibility and

availability of critical export infrastructure.

• Through certainty, stimulate project growth and

development.

• Minimise cost of transportation through efficient systems,

capacity, and availability.

• Through assisting further development, the levels of royalty,

tax revenue, and Gross State Product will increase.

It’s the ‘chicken & egg’ scenario...

• Many companies are unable to finalise their mine without a

port to get to market, but infrastructure providers are unable

to fund a port without the mines already being in place.

• SACOME expects the role of government will need to go

beyond a coordination and facilitation role and include the

provision of seed funding or underwriting to break the

‘chicken and egg’ cycle with market failure infrastructure.

State Infrastructure Plan Discussion

Paper 2010: Priorities – Mining

• Facilitate the expansion of Olympic Dam.

• Develop transport, energy, communications and water

infrastructure to support growth and development of the

minerals and resources sector.

• Develop infrastructure to support the expansion of industry in

Upper Spencer Gulf cities to support the mining sector.

• Upgrade the electricity transmission network to

accommodate investment in renewable energy generation.

• Establish a deep water bulk commodity export port on Eyre

Peninsula for the export of bulk minerals.

• Facilitate market driven approaches to common user

infrastructure development.

Community Engagement

• Resource sector more visible as exploration and mining

activities occur closer to regional communities

• Not just mining, but the infrastructure that comes with it

e.g. transport, ports, desalination etc

• SACOME has taken the lead in recognising community expectations by developing and launching the “Code of Practice for Community Engagement”

Community Engagement

SACOME has increased role in community engagement,

e.g. liaising with SAFF, attending regional events and

actively assisting in managing issues

The challenge is this:

How do we develop a successful mining

industry which enhances and compliments

regional South Australia ?

Community Engagement

Community Engagement:

Working together !

“I think if you look back over the last 30 to 40

years, many developed countries have under-

invested in infrastructure, whether it’s water

infrastructure or power infrastructure or

transport infrastructure, and there’s a price to

pay for that and we’re beginning to see some

of the outcomes.

A lot of the existing infrastructure is under

pressure: power blackouts or near blackouts,

our transport system’s groaning at the seams.

These are the sort of challenges we face

globally.”

Sir Rod Eddington, Chairman, Infrastructure Australia (Sinclair Knight Mertz Interview)

Port Bonython? (Govt presentation 2006)

“I think if you look back over the last 30 to 40 years,

many developed countries have under-invested in

infrastructure, whether it’s water infrastructure or power

infrastructure or transport infrastructure, and there’s a

price to pay for that and we’re beginning to see some of

the outcomes.

A lot of the existing infrastructure is under pressure:

power blackouts or near blackouts, our transport

system’s groaning at the seams. These are the sort of

challenges we face globally.” Sir Rod Eddington,

Chairman, Infrastructure Australia (Sinclair Knight Mertz Interview)

SURE HOPE SO !

Presentation by

John Roberts, President

SACOME

Thank you......