Mining boom to return to Australia by 2011: BIS Shrapnel

By Emma Thelwell, ninemsn Money

Australia's commodity sector will be back to mining a rich seam within the next three years, fuelled by the recovery of Chinese demand, according to a new report.

BIS Shrapnel's annual study on the mining industry predicts that investors will pour more than $50 billion worth into the sector by 2011-12.

However, the group warned that the sector will suffer a short-term downturn in investment over the next 12-18 months before the good times return.

Adrian Hart, senior manager of BIS Shrapnel's infrastructure and mining unit, told ninemsn that the downturn was an inevitable echo of the global financial crisis (GFC).

"The global recession has dented minerals demand momentarily, but the long term outlook for key commodities is still strong," he said.

"The downturn also reflects the end of a very strong period of growth, with an end to several big projects – such as those by Fortescue Metals – and an end to Rio Tinto and BHP Billiton's breakneck pace [of investment]."

Following sweeping lay-offs and mine closures that threatened to turn Western Australia into a string of ghost towns last year, Mr Hart said he does not expect further large scale job losses or closures.

Mining projects are more likely to be mothballed as investment slows, he warned, stalling growth in mining jobs.

However, the sharp rebound in China's economy is expected to drive long-term demand for Australia's iron ore, luring investors back to the mines.

China is the largest consumer of iron ore, which is the main raw material used to make steel, used for infrastructure projects.

Energy and steel-driven commodities, such as oil, gas, coal and iron ore, therefore stand to benefit most over the next five years, Mr Hart said, while base metals are not expected to enjoy a recovery until after 2012/13.

"Commodity prices fell sharply during the crisis with industrial demand down between 7-20 percent," Mr Hart told ninemsn.

"It totally knocked the head off demand for base metals, such as nickel, silver, lead and zinc," he added.

However, with the end to the downturn now in sight, Mr Hart said the industry needs to prepare itself for the boom times.

"The mining industry was caught on the hop in the last boom," he said, pointing to the shortage of skilled workers, constraints in key rail and port transport chains, equipment shortages and a squeeze on maintenance work.

"There was tremendous investment – rising tenfold over four or five years. The next boom will not be as impressive – we will see double digit growth by 2011-12.

"But the same problems will come back, and we haven't done enough to get the maximum benefit from the upswing in the economy," Mr Hart said.

Calling on the government to work with the mining industry, Mr Hart said a strategy needed to be put in place now, ready for the boom.

In the long term, Australia has the potential to become a major player in the LNG (liquified natural gas) market, and will need to train, educate and attract large numbers of engineers and specialist skilled workers.

"Crucially, further private and public investment is required now to boost coal rail and port capacity on the east coast through the next five years," Mr Hart said.

The Queensland Government recently announced plans to go ahead with the $1.1 billion Goonyella to Abbott Point rail link after it was mothballed earlier this year.

"This – and much more – needs to be done if Australia is to develop new mines and maintain its share of the global coal market," Mr Hart warned.

"Meanwhile, growth in production and investment will boost the demand for skilled labour."

"Without proper investment in skills there remains the risk that many promising projects, for example in LNG, will be delayed and costs will rise."