The Western Australian Chamber of Minerals and Energy warned that the cost of doing business in Australia was detrimental to the nickel industry.
Speaking at the Paydirt Nickel conference in Perth, Mr Reg Howard Smith CEO of CME said that nickel markets were currently under pressure, with higher cost assets finding it difficult to show profit. He added that "For a number of years now, the cost of doing business in Western Australia and Australia has escalated. The increase can be attributed to a number of factors such as a tight labor market, an increase in red and green tape, the push for cost recovery of government services and the federal government's policy position of spreading the benefits of the boom."
He noted that recent reports have also pointed to evidence of rising costs and the impact that could have on resource investment in both Western Australia and Australia in general, with prominent resource sector leaders stating publicly that rising costs were threatening new development in both the oil and gas and mining sectors.
Mr Howard Smith said that "Australia has a weak and worsening cost position in nickel. In 2012, 81% of Australia's nickel production had costs above the global average, up from 63% in 2006. Consequently, Australian production volumes are stagnant. Australia's nickel production remains at 2005 levels yet world nickel production has increased 37% since that time."
He added that Australia's nickel industry had also experienced the impact of new rivals through technological innovation, with the widespread use of nickel pig iron technology allowing extraction of previously uneconomic resources, meaning nickel could be produced much cheaper than Australian mines.
Mr Howard Smith said that "Chinese stainless steel producers view NPI plants as highly attractive, with NPI now accounting for more than 30% of China's nickel consumption. This is at a time Australia's resources sector is heavily reliant on foreign investment, more so than any other industry."
Mr Howard Smith said that rising costs for both project development and operations posed a threat to attracting this foreign investment given it could impact significantly on returns. He added that "These rising costs have significant implications when comparative costs and returns for investing in different jurisdictions are considered by resource companies."
He told delegates that the CME had undertaken a study to better understand the cost of doing business in Western Australia, how it compared to other resource jurisdictions and the associated implications and the deliverables.
The report, which was due shortly, would be used to inform the sector and government about how the industry could swing the cost pendulum towards a more manageable and competitive scenario.
The study was comparing larger costs such as company tax, state taxes, royalties, resource taxes, carbon taxes, labor costs and energy costs. The comparator jurisdictions include South Africa, Chile, West Africa and relevant states of Canada and the United States.
Mr Howard Smith said that it was no secret that the Western Australian nickel industry continued to face its share of challenges following the 2008 global financial crisis. He added that "In 2011, nickel accounted for 4% of Western Australia's total minerals and energy exports, the state's fourth most valuable commodity export at AUD 3.9 billion paid AUD 103 million in royalties and directly employed 9496 people, an increase of 1327 on 2010 figures."
He concluded that "The impacts of the GFC, resultant nickel price falls and project collapses were still being felt and in most cases, results over the recent 2012 reporting season had been below expectations. The Western Australian nickel sector still has some rocky road ahead of it but the state’s resources sector is extremely resilient and the sector clearly needed to overcome a number of serious impediments impacting the nickel industry generally."
Source - miningweekly.com
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