Mining’s legacy: thinking beyond the mine

Taking an integrated approach by developing lasting solutions, serving diverse interests, to support local community and economic development

Ian Satchwell

24 June 2015

2

• Investment attraction, efficient approvals, certain fiscal regime

• Economic reform and infrastructure partnerships

• Whole-of-government and whole-of-jurisdiction approaches to infrastructure planning

• Win-win-win approaches: partnerships, delivery of returns for all, responsibilities for all

• Using mining to facilitate broad-based economic growth

• Importance of technology, knowledge and skills

• Generating strong social licence to operate

Australian approaches to resources development

Source: Qantas

GROWING THE PIE

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• Investment attraction, efficient approvals, certain fiscal regime

• Economic reform and infrastructure partnerships

• Whole-of-government and whole-of-jurisdiction approaches to infrastructure planning

• Win-win-win approaches: partnerships, delivery of returns for all, responsibilities for all

• Using mining to facilitate broad-based economic growth

• Importance of technology, knowledge and skills

• Generating strong social licence to operate

Australian approaches to resources development

Source: Qantas

GROWING THE PIE

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• Rationale for growth in minerals and energy

• Seeking sustainable win–win–win outcomes

• Designing sustainable revenue and expenditure systems

• Maximising direct, indirect and induced benefits

• Building local enterprise and employment

• Activating human and knowledge capital

• Integrated approach to infrastructure to create opportunities for sharing, co-investment, private sector delivery

• Thinking beyond mining

Outline – infrastructure planning in the context of:

81 countries driven by resources in 2011— up from 58 in 1995

Rationale for mining growth: realising unmet potential of minerals and energy development

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80% of resource-driven countries have per capita income levels below the global average; more than ½ of these are not catching up

But 69% of people in extreme poverty

are in resource-driven countries

90% of resources investment has been in middle- and high -

income countries

Source: McKinsey Global Institute, Reverse the curse: Maximizing the potential of resource-driven economies, December 2013

~½ of the world’s known mineral and oil and

gas reserves are in developing countries

Rationale for mining growth: strong win-win-win outcomes

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540 million people in resource-

driven countries could be lifted out of poverty

$11-$17 trillion of resources investment could be

needed by 2030—more than double the historical investment rate

Opportunities to share $2 trillion of investment in

resource infrastructure

Source: McKinsey Global Institute, Reverse the curse: Maximizing the potential of resource-driven economies, December 2013

50%+ improvement in resource-sector competitiveness

possible through cooperative action

…if we get it right

7Source: CET/IM4DC/World Bank Mining Tax Course

Taking a broad view: policy and planning around the full mining value chain and lifecycle – and interactions

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Natural Resources Charter Precept 3:

“Fiscal policies and contractual terms should ensure that the country gets full benefit from the resource, subject to attracting the investment necessary to realize that benefit. The long-term nature of resource extraction requires policies and contracts that are robust to changing and uncertain circumstances.”

Revenue from resources development is a key objective, but not the only key to sustainability …and trade-offs are inherent

Fiscal regime objectives• Maximise return to the State• Encourage investment• Optimal and sustainable tax base• Economic efficiency (optimal

exploitation of the resource)• Equity• Revenue predictability and stability• Fiscal regime stability and transparency• Administrative efficiency

Sound revenue design, administrative capacity and transparency are vital to sustainable revenue systems

Sound expenditure systems (including infrastructure planning and delivery) and administrative capacity are also vital

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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: Sustainable benefits from resources largely derived by growth of enterprises and employment

Economic output from mining operation

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 (Central) Bank

Resource economy in Australia: bigger than traditionally measured

Resource employment by industry 2011-12Share of total employment, financial year

Source: Rayner and Bishop, Reserve Bank of Australia, February 2013 10

Gross Value Added – resource economy 2011-12

Share of nominal GVA, financial year(has more than doubled in past 10 years)

18% of GVA • 11.5% directly from extraction and processing• 6.5% from other sectors providing inputs

10% of employment• 3.25% directly from extraction and processing• 6.75% from other sectors providing inputs

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

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Employment growth by industry sector 2010-2020

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

Case study: Australia’s biggest investment wave since the 1800s gold rushes – but still peaky and transitory

HOBART

Western Australia

Northern Territory

South Australia

Queensland

New South Wales

Victoria

SYDNEY

CANBERRA

MELBOURNE

BRISBANE

ADELAIDE

DARWIN

BROOME

PERTH

Offshore petroleum basins

WA & NT projects to 2016: USD220 billion+

Queensland projects to

2016:USD100 billion+

South West RegionAlumina, gold

Mid West RegionIron ore, gold, uranium, nickel,

Pilbara Region:LNG, iron ore, infrastructure

LNG, mining

Base metals

Bowen and Surat BasinsCoal, CSG, LNG,infrastructure

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*Reserve Bank, Australia

Copper, uranium, infrastructure

PORT HEDLANDKARRATHA

Western Australia sub case: new investment will result in decades of increased production with lower volatility – great basis for economic leverage

* 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

Val

ue in

$M

*

Gold

Iron Ore

Nickel

Oil/Gas

Alumina and Bauxite

~ 2.5 x 2010 value

$m

Source: ACIL Tasman analysis 13

Increased sustaining capital and

services

…infrastructure implications?

Source: Austmine

Mining Equipment, Technology and Tervices (METS) is now a very important industry sector to Australia

INCLUDING

$27 BILLION

EXPORTS

Activating human capital: a nation’s most precious resource – education and training institutions are key infrastructure assets

Education and training institutions: key

infrastructure assets

Complementary to traditional

infrastructure

Education and training ecosystem: public

sector and industry collaboration

• Crucial to dealing with challenges and opportunities of the 21st Century• Advanced education integrated with research• Build skills and knowledge capital

• Knowledge-intensive and knowledge creating• Adaptable and capable to deal with uncertainty and to engage with the

emerging new economy at home and abroad

• Public and private university and technical colleges; industry and company learning centres; regional learning hubs;

• Knowledge spillovers and though-career learning: trained workers move between projects and firms, taking skill set and culture with them

Integrated policy on industry, education and training – and integrated into infrastructure planning

Minerals Council of Australia 2020 Vision Infrastructure Project (2009): resources growth regions

21 growth regions

Current projects and production

Adequacy of current infrastructure

Growth scenarios for each region

Interaction of regions

Infrastructure gaps and needs to 2020

• Minerals & petroleum growth prospects remain strong

• Many infrastructure gaps now

• Worse in future – would inhibit development and international competitiveness

• Infrastructure for community and local economic development very important

• Need detailed region-by-region planning and provision to ● overcome current infrastructure deficits● manage for growth

2020 Vision Infrastructure Project: what was found

Infrastructure Australia – established 2008

• To drive the development of a long term, coordinated national approach to infrastructure planning, priorities and investment, focusing on transport, water, energy and communications

• Seven strategic priorities● Expanding Australia's productive capacity● Increasing Australia's productivity● Diversifying Australia's economic capabilities● Building on Australia's global competitive advantages● Developing Australia's cities and regions● Reducing greenhouse emissions● Improving social equity and quality of life in cities

and regions

• Infrastructure Australia http://www.infrastructureaustralia.gov.au/ Strategic Infrastructure Plan for South Australia http://www.infrastructure.sa.gov.au/strategic_infrastructure_plan

• NSW State Infrastructure Strategy http://www.infrastructure.nsw.gov.au/state-infrastructure-strategy.aspx

• Pilbara Planning and Infrastructure Framework http://www.planning.wa.gov.au/672.asp

• See also UK National Infrastructure Plan https://www.gov.uk/government/collections/national-infrastructure-plan

Australian and state approaches to infrastructure planning

Resources development clusters in Australia: what we have learned about infrastructure

HOBART

Western Australia

Northern Territory

South Australia

Queensland

New South Wales

Victoria

SYDNEY

CANBERRA

MELBOURNE

BRISBANE

ADELAIDE

PERTH

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• KALGOORLIE

• DARWIN

PILBARA REGION

Chinese demandEnergy emergesFounded on iron ore

1960s 1970s 1980s 1990s 2000 2010 2020

Australia’s most northern city – close to Asia. Service centre for mining, oil and gas, defence and marine. Population 110,000

Mining city since early 1900s – gold, nickel sulphide and nickel laterite – long life operations and evolving industry. Strong METS sector. Regional population 45,000

Kalgoorlie and Darwin: Infrastructure is key to success of mining, METS sector and local development

• Water, energy and transport infrastructure: supports mining, small business and community

• Business and community infrastructure: serviced industrial land, roads, energy, water, community facilities

• Attractive urban amenity: skilled resident workforce; sustainable demographic profile; • Education and training institutions: public and private secondary schools and VET

colleges; plus universities• Business services and financial institutions that understand mining and services• Supportive, light-handed government interventions, eg: partnerships with business to

connect customers and suppliers; small business support

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Pilbara infrastructure planning changes

● Overall– framework for planning and all

infrastructure– cooperative planning between

levels of government and industry within agreed growth parameters

– proportion of royalty revenues fund infrastructure

● Ports– move to multi-user ports to allow

for investment diversity● Rail

– future multi-user railways with independent operator

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Pilbara infrastructure planning changes (2)

● Land, housing and community infrastructure– long-term planning; coordination

between companies and government

– seeking to build sustainable communities

● Energy– government seeking to establish

Pilbara electricity grid● Water

– cooperation between companies and government

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• Predicting the future is very difficult● a guiding overall vision is needed, with agility to respond to global forces● uncertainty (in part) can be managed though options approach

• Early planning and coordination of infrastructure is essential● partnerships needed between government – mining industry –

infrastructure providers – financiers• Efficient integrated production chains are vital for global competitiveness of

resource development operations• But monopolies on rail and port infrastructure can hold out new entrants• Community and service industry infrastructure as important as industrial

infrastructure• Through life infrastructure approach necessary to maximise utility of

infrastructure • Economic resource corridors provide holistic approach and options for

future development.

What we have learned from Pilbara experience

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• An economic resource corridor is a sequence of investments and actions to leverage large extractive industry development into broader economic development and diversification

• Investments (public and private) are prioritised and integrated around shared infrastructure and programs

• The approach is flexible and unbundles otherwise very large investments

• In each step, capacity is built within community and small-to-medium enterprises to realise benefits from emerging opportunities

• The integration of public and private plans, together with key environmental and social factors, has a clearly defined geographic footprint

• Corridors having economic diversity are designed to interconnect into a national pattern that will evolve organically across time with changing political and market dynamics.

World Bank Economic Resource Corridor concept

Maputo Development Corridor – projects completed

MAPUTO

Pande-Secunda Gas line. PPP Sasol completed

Coal-based Power Station2 transmission lines to Matola

completed

Liquid Fuels & Petro-chemicals: Sasol

Al smelter 500ktpaBHPB completed

Joburg-Maputo HighwayPPP- BOT completed

Port of Matola/MaputoUpgrades, PPP

Joburg to Maputo Railway line: Upgrade

GAU

TEN

G

Central Development Corridor

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• Take a broad view of benefits: ● revenue● local business● inclusive economic development● skills and knowledge and spillovers● infrastructure co-investment, sharing● economic transformation – reshaping economies through growth

• Integrated infrastructure planning, prioritisation, and delivery● across the economy and across all classes of infrastructure● economy-enabling – especially smaller business● hard and soft; industrial to community; education and training

• Use experience of others and adapt to local context

Conclusion: Thinking beyond the mine (or rather, mining plus) – activating broad-based economic transformation

Contact International Mining for Development CentreWA Trustees BuildingLevel 2, 133 St Georges TerracePerth WA 6000AustraliaTel: +61 8 9263 9811Email: admin@im4dc.org

www.im4dc.org

The Energy and Minerals InstituteThe University of Western AustraliaM475, 35 Stirling HighwayCrawley WA 6009AustraliaTel: +61 8 6488 4608Email: emi@uwa.edu.auWeb: www.emi.uwa.edu.au

The Sustainable Minerals InstituteThe University of QueenslandSt LuciaBrisbane QLD 4072AustraliaTel: +61 7 3346 4003Email: reception@smi.uq.edu.auWeb: www.smi.uq.edu.au