Adding value to minerals and energy: mining equipment, technology and servicesMining Supplies and Innovation: An opportunity for the CountryIan Satchwell11 April 2014

• Investment and production

• Redefining the Australian mining sector

• Employment and multipliers

• Case studies of METS development

• Some lessons

• Australian approaches to development

• The value of people

Outline

2

Australia’s engineering and construction challenge – the largest investment wave since the 1800s gold rushes*

HOBART

Western Australia

Northern Territory

South Australia

Queensland

New South Wales

Victoria

SYDNEYCANBERRA

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, mineral sands,

gold

Mid West RegionIron ore, gold,

uranium, nickel,

Pilbara RegionLNG, iron ore, infrastructure

LNG, mining

Bowen, Surat and Galilee BasinsCoal, CSG, LNG

South Australiaprojects to

2016 USD10 billion+

3

*Reserve Bank, Australia

Copper, uranium, mineral sands,

petroleum

PORT HEDLANDKARRATHA

Gladstone and North West

Economic TriangleBase metals,

bauxite-alumina

Goldfields RegionGold, nickel, iron ore

New South WalesCoal, gold, base

metals

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

Val

ue in

$M

*

Gold

Iron Ore

Nickel

Oil/Gas

Alumina and Bauxite

Double 2011 value$m

Source: ACIL Tasman analysis

4

Increased sustaining capital and

services

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

5

Gross Value Added – resource economy 2011-12Share 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

GDP contribution of Mining Equipment, Technology and Services (METS) sector has grown faster than mining’s

METS output is growing at 15 to 20% a year• 4% of national output

in 2002-03 • 8.4% in 2011-12METS contribution to GDP• 6.7% in 2010-11 • Est. 9.4% in 2012-13Many METS are knowledge- and technology-intensive

Source: Australian Treasury and Ed Shan / Minerals Council of Australia 2012 6

Source: Austmine 7

METS is now a very important industry sector to Australia

Australian exploration and mining industry is now global – the business dimension of Australia’s strategic interests

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Canada33 companies

United States42 companies

Latin America94 companies

Africa220 companies Indonesia

47 companies

Mongolia19 companies

China16 companies

Europe53 companies

Greater Asia31 companies

Papua New Guinea

25 companies

Laos & Cambodia14 companies

Philippines19 companies

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Australian METS firms are now major exporters of equipment, technology and knowledge

Source: Austmine 2013

…with deep links into the economy

Source: Austmine10

Western Australia METS firms46 manufacturing: equipment,

supplies, chemicals

34 EPCM / engineering / construction

26 consulting

27 contract mining

10 IT developer/ equipment provider

10 technology development/application

15 other professional services

18 other

METS development extends well beyond mining regions

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HEAD OFFICES AND OPERATIONS

METS = Mining Equipment, Technology and Services. Source: Austmine 2013

Head officesBranch operations

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 – 4

Africa 7 – 10

13

Indirect Induced

DirectLocal

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 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

1414

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 20112: Government of Western Australia, Department of Commerce, Local Content Report 2011 – figures for period 1/1/2011 though 30/9/20113: Media Statement, 8 March 2012, Minister for Commence, Hon Simon O’Brien

Case studies of METS clusters in Australia

HOBART

Western Australia

Northern Territory

South Australia

Queensland

New South Wales

Victoria

SYDNEYCANBERRA

MELBOURNE

BRISBANE

ADELAIDE

PERTH

15

• KALGOORLIE

• DARWIN

WHAT WE HAVE LEARNED

PILBARA REGION

North West Shelf LNG

Case study: North West Shelf Project and technology-intensive service industry developmentAPPLICATION OF LEADING TECHNOLOGIES PREVIOUSLY NOT AVAILABLE IN AUSTRALIA

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Technology transfer from

overseas

Technical innovation in

Australia

Transfer to other

projects

Development of petroleum services hub

Development of a new technology and knowledge

intensive industry sector

Services to WA and

overseas markets

Attraction of investment

Case study: Kalgoorlie, Western Australia

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• Mining town since 1900s – ● Gold, nickel sulphide and nickel laterite –

long life operations and evolving industry

• 600 km east of Perth

• Region’s population 45,000

• Mining services developed initially because of remoteness

• Strong regional METS clusters (sectoral and geographic) ● ~200 manufacturing & services sites

• Now a net ‘exporter’ of mining equipment and services to other locations

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

and gas, defence and marine sectors• Population 110,000• Mining services developed initially

because of remoteness• Now has a competitive advantage in

mining and petroleum services• Strong regional METS clusters

(sectoral and geographic) ● ~300 manufacturing & services sites● Collaborative business culture

• Exporter of METS to other locations, including Indonesia

Case study: Darwin, Northern Territory

Kalgoorlie and Darwin: Factors of success• Long-life customer mining/petroleum operations ; diverse markets (Darwin – sector

diversity; Kalgoorlie – geographic diversity)• Good business and community infrastructure: serviced industrial land, roads, energy,

water, community • Skilled resident workforce; sustainable demographic profile; attractive town amenity• Education and training institutions: public and private secondary schools, and

vocational training and education; universities / school of mines (Kalgoorlie)• Strong entrepreneurship culture, support networks, business services• Financial institutions that understand mining and services• Supportive, light-handed government interventions, eg: industry participation policies;

partnerships with business to connect customers and suppliers; small business support

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• Collaborations to overcome small scale and lack of capacity • Right size contracts and alliances to help build local firms

● some operations have adopted ‘inside-out’ strategies to help employees become independent services suppliers

• Revise e-procurement and payment processes for small firms● companies offer access to global supply chains for good

performers• Government-business partnerships to build supplier-customer

linkages, eg● Australian Industry Participation National Framework ● Industry Capability Network; Project Connect

• Infrastructure to support business● Government investment and facilitation of business infrastructure

through PPPs

Kalgoorlie and Darwin: overcoming obstacles

Industrial

estates

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• Economic reform and infrastructure partnerships

• Investment attraction, efficient approvals, certain fiscal regime

• Win-win-win approaches: partnerships, delivery of returns 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 development

Source: Qantas

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GROWING THE PIE

• Market-based reforms to energy, water and transport

• Flexible and diverse labour market

• Demand-responsive education and training

• Liberalisation of trade and investment

• Taxation reform

• Robust policy processes – eg Productivity Commission, Infrastructure Australia, green & white papers, think tanks

• Transparent and open approval processes

Regulatory and institutional processesTHREE DECADES OF REFORM

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People are Australia’s most important assetFocus on attracting, developing and retaining high-quality talent, not just a focus on hard infrastructure

Education and training

institutions: key infrastructure

assets

Complementary to traditional

infrastructure

Public sector and industry collaboration

• Crucial to dealing with challenges and opportunities of the 21st Century

• Advanced education integrated with research

• Knowledge-intensive and knowledge creating• Adaptable and capable to deal with uncertainty and to engage with the emerging new global economy

• e.g. Technical colleges; SKM Learning Centre, GE Energy Learning Centre; University research and teaching centres (Rio Tinto, BHP, Chevron, Shell)

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

Integrated policy on industry, education and training

International Mining for Development CentreThe University of Western AustraliaWA Trustees BuildingLevel 2, 133 St Georges TerracePerth WAAustralia 6000Tel: +61 8 9263 9811

Email: admin@im4dc.orgwww.im4dc.org

Contact

The Energy and Minerals InstituteThe University of Western AustraliaM475, 35 Stirling HighwayCrawley WAAustralia 6009Tel: +61 8 6488 4608Email: emi@uwa.edu.auwww.emi.uwa.edu.au

The Sustainable Minerals InstituteThe University of QueenslandSt LuciaBrisbane QLDAustralia 4072Tel: +61 7 3346 4003Email: reception@smi.uq.edu.au

www.smi.uq.edu.au