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August 23, 2012 11:33 am
Australia’s resources minister was forced on Thursday to clarify remarks he made about the country’s resources boom in the wake of a decision by the world’s biggest mining company not to go ahead with at least A$30bn ($31bn) of expansion projects as originally planned.
Speaking to ABC Radio a day after BHP Billiton shelved the expansion of its Olympic Dam copper, gold and uranium mine in South Australia and put a large iron ore development in Western Australia on hold, Martin Ferguson said people had to “understand the resources boom was over.”
But amid an escalating political row between Australia’s ruling Labor party and the opposition Liberal coalition over BHP’s decision, Mr Ferguson moved to qualify his earlier declaration, saying that he was only talking about commodity prices and investment in the sector was still strong.
“Anyone with half a brain knows that today’s record commodity prices are over. The boom in commodity prices is over,” he explained to reporters outside Parliament House in Canberra. “But the mining boom, in terms of construction, is not over. It speaks for itself: A$270bn in committed capital investment.”
The Australian economy has become increasingly dependent on the resources sector for growth. By mid-2014, the Reserve Bank of Australia estimates investment in the sector to reach at least 9 per cent of gross domestic product. If that happens mining investment will be about as large as business investment in the rest of the private economy combined.
Tony Abbott, leader of the Liberal coalition, has tried to blame the Labor government’s unpopular mining and carbons taxes for BHP’s move to rein in spending, even though Marius Kloppers, the chief executive of BHP, says the decision was forced by rising costs and weakening commodity prices and had nothing to do with the mining tax. Australia’s Minerals Resource Rent Tax applies only to coal and iron ore, not uranium, gold or copper.
“The decision is almost wholly associated with, in the first instance, capital costs, which is not only an Australian issue,” Mr Kloppers said on Wednesday after BHP reported its first decline in profits since the height of the global financial crisis.
But Mr Abbott has kept up his attack saying that investment decisions were not considered in “isolation”. “The mining tax may have not been on the project but it was certainly on the company,” he said on Thursday.
“And the A$20bn Port Hedland expansion [in Western Australia] is obviously impacted by the mining tax because that is an iron ore port.”
The Reserve Bank of Australia believes mining investment will peak sometime in 2013-14 but reckons slack will be taken up by increased exports as the projects under construction enter production.
That view, however, has been questioned by some economists, who argue that mining booms rarely end with a whimper and that a large decline in commodity prices and Australia’s terms of trade – a ratio of export prices to import prices – has been followed by a recession on a number of occasions.
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