Party ends for Western Australia’s investment boom

Party ends for Western Australia’s investment boom   2013-05-24 by Christian Edwards

SYDNEY, May 24 (Xinhua) — It’s over. Official figures released Thursday by the Bureau of Resources and Energy Economics (BREE) show that Australia’s burgeoning resource state of Western Australia is staring down at the now empty barrel of the China- driven investment boom, leaving experts scanning the economic horizon for the next ray of hope. Projects worth over 175 billion Australian dollars, which have already been on the pipeline or under construction, are now slowly being shelved.

New gas projects that have been planned include the 53 billion Australian dollar Gorgon gas project, the 30 billion Australian dollar Browse LNG (liquefied natural gas) project, and the 29 billion Australian dollar Chevron-Wheatstone LNG project, in addition to a range of iron ore, gold and other projects. For more than six months fears have been growing that the party could be over.Released Thursday to audible groans from Perth to the Pilbarra, the latest figures show for the first time since the boom began almost a decade ago the value of new mining and energy projects in the resources sector to be falling fast.

At the end of 2012, mining investment in Australia had leapt to above 6.5 percent of GDP, up from 1.1 percent in 2004. If the boom were to suddenly lose its bang, Australia and particularly Western Australia will be the most affected.

A handful of big LNG projects, including the massive Gorgon project, are all that keep resources investment steady.

BREE has calculated the combined value of resource and energy projects to begin slipping from 268 billion Australian dollars to 256 billion Australian dollars by yearend and then further plummet to 185 billion Australian dollars by the end of 2015.

According to BREE, that represents a 31 percent fall in only three years.

Covering the whole western third of Australia, the state accounts for nearly 15 percent of national gross domestic product (GDP) along with over 40 percent of total exports. China is the state’s biggest consumer, absorbing over 40 percent of Australia’s iron ore exports.

Without new projects, the bureau believes total spending by miners and energy producers will be just 50 billion Australian dollars by 2018.

Ross Garnaut, former ambassador to China, said this looming downturn would certainly have a negative impact on the Australian economy.

“We are likely now to face major adjustments to incomes and living standards and if we do not manage the adjustments well, we will face a long period of economic stagnation and severe unemployment problem,” Garnaut said.

With Perth as its capital conveniently on the same timeline as Beijing – Western Australia accounts for 46 percent of Australia’s merchandise exports, almost 60 percent of minerals and energy exports and 35 percent of private investment.

With 62 percent of Australia’s total natural gas production, the resource and energy sector has contributed the most to Western Australia’s staggering economic growth of 14.2 percent over the past year.

But after a sterling run, the outlook for miners appears to be dim.

Perth-based KPMG Partner, Duncan Calder, which specializes in cross-border M&A deals, has agreed that the junior mining and exploration companies are doing it very tough at present.

“Exploration spending was already being reduced as capital markets tighten and junior mining companies seek to conserve cash balances which are approaching critical levels for many ASX and TSX listed companies,” Calder said.

Calder said critical mass was approaching since Treasurer Wayne Swan delivered his sixth Federal Budget last week.

Some 150 billion Australian dollars of pipeline projects have imploded, with cost blowouts on existing projects accounting for 11 percent of the value of total projects.

BREE also noted a substantial fall in the number of projects getting the green light from resources companies.

Alleviating the pain of declining mining investment will be a rising mineral exports. BREE predicts resource exports will grow 28 percent in the next five years and, despite volatile iron ore prices, as well as a global commodity market beset by anxiety, mining export revenues will still jump by almost half.

The bureau estimates the value of planned WA projects dropped more than 30 percent since its last report in October last year.

Calder said disincentives in the current tax regime to merge or acquire were another blow to local miners.

“The restrictive rules around tax loss availability are also a disincentive to merger activity that could have helped these small mining companies to survive,” Calder said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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