Kalgoorlie, Australia — While the August weather may have been chilly, the kick-off of the 11th annual Diggers & Dealers mining conference in Western Australia provided some heat for the record 1,200 delegates in attendance.
Outspoken forum chairman Brian Hurley launched the 3-day event by chiding Australia’s state and federal governments for their continued lack of concern for the mining industry. In particular, Hurley took issue with the government’s lack of leadership in reinvigorating declining exploration spending in Australia, handling native title legislation, and running a diesel fuel rebate scheme.
“Last year at this forum I lamented about the continuing decline in greenfields exploration expenditure, and about the lack of concern about this issue within all levels of government,” said Hurley. “The federal inquiry known as the Prosser report has been completed, but as I predicted we are yet to see any meaningful results.”
The inquiry, which examined impediments to resources exploration, produced as its most urgent recommendation that a definition of greenfields exploration be agreed upon.
Hurley called on miners to petition their federal members to consider Canada’s flow-through-share system, which allows for companies to attract more investors by passing along tax deductions on exploration expenditures.
“The government set up the Bowler committee to look into greenfields exploration, and we’ve now seen the state government’s response to the report’s recommendations, which frankly is an insult to the industry and provides no impetus to kick-start exploration,” he added.
Among the Bowler report’s 33 recommendations are:
— accelerating land title approval;
— a review of the Aboriginal Heritage Act;
— improving access to geoscientific data and greater support for the Geological Survey of Western Australia;
— introduction of a “greenfields regions” exploration licence recognizing the greater risk involved in exploring in remote parts of Western Australia and;
— support for a flow-through share scheme applicable to such areas.
In the past decade, annual exploration expenditures in Australia have been halved to A$600 million.
“There’s a quote in the Bible that reads ‘seek and ye shall find,” he said. “I guess the flip side of that coin is that if you don’t seek you won’t find, and if you don’t find it you can’t mine it.”
Hurley is equally unhappy about the government’s diesel fuel rebate program, which requires mining companies to pay the excise up front and then apply for a rebate.
The chairman calls the program a “rip off,” and says that according to the Western Australia Chamber of Minerals and Energy, the rebate was worth approximately A$1 billion to the mining industry in the year ended October 2002. “In other words, the mining industry gave the federal government A$1 billion interest free.”
As for the government’s native title legislation, Hurley characterized it as a “bigger, more consistent and lucrative money tree for lawyers than the family court and royal commissions combined.”
Hurley warned that if the declining exploration spending in Australia isn’t addressed, the industry is doomed to become a shadow of its former self. To make themselves heard, he suggests that mining companies withhold political donations to any party until the “native title fiasco is fixed.
“The government’s attitude is to screw the resources industry; let’s strangle that damn golden goose to within an inch of its life,” Hurley stated. “Why do governments of all persuasions want to penalize our great industry? I believe it’s for the same reason dogs lick their genitals, its because they can and nobody stops them.”
Hurley says the government doesn’t care because it doesn’t play well in the urban centres of Sydney, Melbourne and Canberra.
In a parting shot, Hurley wrapped up his opening remarks by saying, “Diggers & Dealers is about achievement and optimism, which is why we remain a politician-free zone; we don’t want to be infected by their disease.”
Lassonde
He expects that with the lower spending mine production, which is already on the slide, will probably slip by 2-3% per year for the next two years, regardless of what the price of gold does.
In response to Hurley’s harsh words regarding the Australian government’s relationship with the mining industry Lassonde said, “I’ve told my kids for 20 years life is not fair; grow up. We’d all like to run our own country — there’d be no royalties or taxes — but it doesn’t work that way.”
Lassonde suggests that part of the problem is that the mining industry hasn’t communicated effectively to the government its importance to the economy, a problem also common in Canada and the United States.
In the end, Lassonde said he ranks Australia behind only Nevada as the place to be for mining.
With last year’s Diggers & Dealers’ accurate gold-price prediction in the bag, Lassonde forecast the yellow metal to venture as high as US$450 per oz. within the next 12 months. He says the U.S. dollar remains overvalued and that it must fall, which would automatically result in a higher gold price.
However, he wasn’t so optimistic about the Aussie-denominated gold price, which he figures won’t see anywhere near the U.S. price increase, as the resource-based Australian dollar appreciates along with the yellow metal.
Part of the engine driving gold’s good fortunes is dehedging, in which Newmont has led the charge by virtually eliminating the 10-million-oz. hedge book inherited via its takeover of Australia’s Normandy Mining in 2002.
“For every 100 tonnes dehedged you’re looking at a increase of US$5 per oz. in the gold price. And it’s going to continue; the contango is worth nothing and it’s going to stay there. It doesn’t pay to hedge and investors are saying the same thing.”
Key to Lassonde’s outlook for gold over the next 2-3 years is the United States’ US$550-billion deficit, which he says will continue to depreciate the greenback against other world currencies while gold continues to appreciate.
Lassonde’s other big prediction was that Chinese demand for gold would far outpace India’s (600-700 tonnes annually) within a few years. He sees deregulation of the country’s gold industry in June as one of the key events in the world this year. He expects the move will only push the gold price higher.
Friedland
The conference’s other standing-room-only attraction was saved for last.
He invited the audience to join him in exploring what he believes will be the world’s next copper province in Mongolia. Friedland explained that Australians have a huge natural advantage over the rest of the world as far as getting in on the ground floor in Mongolia; the terrain is similar to that of Australia and the two countries are in the same time zone. Friedland also sees Australia’s world-class engineering talent as a good fit with China’s detailed engineering and construction industries.
The foundation for Friedland’s fervour for Mongolia is neighbouring China’s voracious appetite for metals to fuel its feverish economic growth. With its proximity, Friedland figures that Mongolia and his company’s Oyu Tolgoi copper-gold project have the edge over African, Australian, and South American rivals in the race to feed China’s starving smelters.
And, Friedland said, the Chinese government is only too willing to lend a hand. The state has agreed to contribute up to US$300 million to build new highway and rail links between the two countries. The government in the neighbouring Chinese province of Inner Mongolia has also committed to build a 226-km highway to link the Mongolian-Chinese border to the Trans-China Railway system. Ivanhoe is in talks with both sides to extend the highway another 80 km to Oyu Tolgoi.
Putting its money where its mouth is, Ivanhoe has amassed around 110,000 sq. km of land in Mongolia. The package is believed to be the largest privately held land position in the world. The 85-sq.-km Oyu Tolgoi copper-gold project is situated about 530 km south of the capital city of Ulaanbaatar.
At last count, Oyu Tolgoi was home to an overall resource of 36.9 billion lbs. copper and 20.8 million oz. gold in 2.9 billion tonnes of mineralized rock, based on a cutoff grade of 0.3% copper-equivalent. Doubling the cutoff grade reduces contained metal to 24 billion lbs. copper and 13.6 million oz. gold. The estimates employ metal prices of US80 per lb. copper and US$350 per oz. gold.
Digger of the Year
In a bit of a surprise, Woodside Petroleum took home the Digger of the Year honour. The company finalized new Chinese contracts and commissioned major capital upgrades during the year. Less of a surprise, Canada’s
Before officially calling the forum to a close, Hurley sniped back at Lassonde’s “grow-up” comment by saying, “Well Pierre old mate, with respect, when you live in the biggest house on the street you can afford the luxury of being patient. Unfortunately, most of us live on the wrong side of the street and cannot afford to sit around waiting for those filibusters in Canberra to get their act together. We must retain the rage.”
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