Western Australia's Mining Industry

Western Australia’s mining industry The plentiful state adapts to challenging times. This report was researched and prepared by Global Business Reports (www.gbreports.com) for Engineering & Mining Journal. Editorial researched and written by Katya Koryakovtseva, Angela Harmantas and JP Stevenson. For more details, please contact [email protected]. Cover photo courtesy of Millennium Minerals. A REPORT BY GBR FOR E&MJ JANUARY 2014 MINING IN WESTERN AUSTRALIA Western Australia Sparing the Mine and Spoiling the Miner. Sonic drilling on Lake Way Deposit. Photo courtesy of Toro Energy. If Australia is known as “the lucky country,” then Western Australia its benefit; becoming the fastest-growing state in Australia. could be considered the luckiest of its five states and two territories. Mining and resources have always been the backbone of West- The nickname, coined by Australian professor Donald Horne in the ern Australia’s economy. In 2012, the value of the state’s mineral 1960s, was largely inspired by the abundance of natural resources and petroleum sector was A$97 billion, which is the second-high- that punctuate the country’s landscape. Western Australia is a vast est total in history, behind the record A$108 billion in 2011 ac- area that covers nearly one-third of Australia’s total surface and is cording to the Department of Mines and Petroleum. Western Aus- home to some of the world’s largest iron ore deposits, as well as tralia and the national economy continue to benefit from the growth over 50 other metals and minerals. Queensland may have coal, in the resources sector. Confidence has returned to the market on Victoria may have gold, but Western Australia has a culture and the back of solid price rises in iron ore. As of October 2012, com- history deeply rooted in mining and resources, which it has used to mitted capital expenditure on major projects in Western Australia increased by 4.1% to A$141 billion from the $135 billion at the end of April 2012. West Australian resources companies total market capitalization at the end of November 2012 stood at A$86 billion, an increase of 2.1% from the end of August 2012. This growth has strengthened post-election, with strong results posted by majors BHP Billiton, Fortescue Metals Group and Rio Tinto. This looks to translate into strong, stable growth in the coming period. BIS Shrapnel, a market forecasting service, has forecast mineral production in Australia to increase by 41% over the next five years: a far cry from the dim-results predicted in the first half of 2013. However, Western Australia’s mining industry must now solve a series of structural problems, the answers to which will define the face of the industry moving forward. Western Australia has grown fat off its “luck,” but the rise of the Pilbara and the country’s oil and gas industry have come at a cost. Mines and their ore bodies have been spared: their miners, spoiled. Mine productivity has hit a historic low as wage rates have hit a historic high. Compounded with a downturn in global commodity prices, this dynamic has led some to question the economics of West Australian mining. Yet West Australian mining remains viable. From the beating which global commodity markets have inflicted on the industry, a better industry is now emerging: innovative and lean. New Frontiers in Iron Ore Iron ore continues to be the driver of Western Australia’s mining industry. Nearly 93% of Australia’s iron ore deposits are found in the state, with most of these being located in the world-class Pilbara region, home to mining giants Rio Tinto, BHP Billiton and home- grown Fortescue Metals Group. However, a new iron ore region is emerging in the Midwest, with large hematite deposits ready to be mined as soon as port and rail challenges are solved. 50 E&MJ • JANUARY 2014 www.e-mj.com Most iron ore is shipped from the port of Esperance, on the southern coast, or Port Hedland in the north, but these two main hubs are already operating over capacity. A much desired A$6 billion development of the Oakajee port in the western part of the state held promise, but was recently suspended due to a lack of interest from potential joint venture partners; leaving a slew of juniors — and investors— in limbo, whose development depends on regional investment. Some, however, view the region’s development as only a matter of time. Padbury Mining, a fellow member of the Geraldton Iron Ore Alliance, which has 1 billion mt of JORC-compliant magnetite and 11.5 million mt of direct shipping ore in the Midwest region, took the unusual step of acquiring the intellectual property from a failed Chinese-backed bid for the development of Oakajee’s infrastructure. The intellectual property itself is held in a subsidiary, which Padbury’s CEO, Gary Stokes, hopes to divest to an infrastructure development company. “Peak Hill’s region could absolutely become the next Pilbara,” said Stokes. “We believe there are 50 billion mt there; already 21 billion mt, JORC-compliant, have been identified. The Midwest is set to grow exponentially, just as soon as the infrastructure develop- ments go ahead. China has an exposure of perhaps $5 billion in the Midwest, so it is not just going to sit and watch.” Grappling with the Gold Market Western Australia’s evolution has historically been tied to gold rush- es. Today, Western Australia is home to one of the country’s largest gold mines at Boddington, owned by Newmont, and exciting new discoveries like Tropicana, a 118 million mt resource containing 7.89 million oz of gold. However, the recent slide in price of gold has been strongly felt by gold miners operating in the state. Aver- age cash costs for operating gold mines in Western Australia are above A$1,000/oz. While still economic, falling prices and escalat- ing costs are creating an environment of uncertainty amongst the state’s gold miners. Enter small juniors, who are attempting to make economic projects out of less. The projects coming into fruition in Western Australia over the near term are those that have less reserves or a shorter mine life, but lower cash costs and, as a result, are highly profitable. Doray Minerals that owns the Andy Well project in the north- ern Murchison region poured first gold in September 2013. The 444,000 oz resource is expected to produce around 74,000 oz/y of gold over a four-year mine life. With cash costs at around A$900/oz, the payback period for investors is likely to be less than two years. Installation of the ball mill. Photo courtesy of Doray Minerals. www.e-mj.com E&MJ • JANUARY 2014 51 MINING IN WESTERN AUSTRALIA Michael Dunbar, managing director of Gascoyne Brian Rear, managing director of Millennium Allan Kelly, managing director, Doray Minerals. Resources. Minerals. Doray’s managing director, Allan Kelly, sets are still attractive to overseas players. years while significantly reducing operating explained how the company was able to In August 2012, Zijin Mining, the No. 1 costs. The company will increase the mill convince shareholders that Andy Well was gold producer and No. 2 copper producer in feed grade; last year our resource grade was worth mining. “The market’s focus has been China, acquired 89% of ASX-listed Norton higher than our mill grade, so the develop- on ounces instead of grade. The simplest Gold Field’s shares. As Dr. Diamen Chen, ment of a large base load mill feed, which way to value companies is by putting an en- Norton’s Perth-based CEO, explained, Zijin’s we called Enterprise, will provide over five terprise value per resource ounce, and when strategy was always to develop internation- years base load mill feed for our operations, we are trading at A$300/oz, the market ally and it saw Norton, and specifically the at 1.72g/mt. The higher mill feed will pro- viewed us as overvalued. A company that company’s Paddington gold mine, as a good vide us with the opportunity to significantly has 1 million oz at 1g/mt might be trading platform for the company’s overseas growth. increase our gold production over the next at A$20/oz, and compared to them Doray “Norton’s strategy is to increase gold pro- few years,” said Dr. Chen. seems expensive. However, these projects duction, reduce costs and to seek further Gold companies that are currently at might not even go into production,” he said. merger and acquisition opportunities to ex- the development stage face the challenge Despite the high costs of getting gold out pand its operations in Australia. Our plan is of building capital-intensive mines without of the ground in Western Australia, the as- to double production in the next three to five steady cash flow. Gascoyne Resources is tar- geting production at their 1 million oz Glen- burgh project by late 2014. “We did a place- ment late last year to some large gold funds in the United Kingdom, and have been doing a lot fundraising to allow us to continue ag- gressive exploration,” said Michael Dunbar, managing director of Gascoyne Resources. “It is important for us to keep drilling because once the company loses momentum it takes a huge amount of time to gain it back. In the meantime, the company is still responsible for administrative expenses.” Despite the challenge of a high-cost environment, Doray’s Allan Kelly believes that the opportunities outweigh the negatives. “There is more gold to be found in the state, both in known deposits and previously operating mines.

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