Optimising the resources boom means smarter planning

The current resources boom, predicted widely to last for an extended period, dominates the Australian economy and generates huge business activities and profits that are shaping government revenues and policies at federal and state levels – particularly in the “resources” states.

The boom is unprecedented and sustained. There is an emerging view that it won’t end in the foreseeable future.

Australia has to prepare prudently for the phenomenon to end, but it also has to plan for it to run on for 15 to 30 years, to meet the demand from the emerging giants of the world markets.

The boom is intricately linked to the surging economies of Asia and carries the attendant risks and rewards. It gives rise to some key economic and technological issues for Australia, which the Australian Academy of Technological Sciences and Engineering will address at its annual symposium in Perth on 19 and 20 November 2007.

Titled Resources Boom: Opportunities and Consequences, the 2007 Symposium will examine – from both Australian and international perspectives – the upside and downside of the situation into which the resources boom has pushed the nation.

The boom poses questions that have serious national implications.

Will the demand be sustained?

The short answer is that we don’t know, but all the indicators are that the demand for minerals to underpin the economic development of the roaring economies of China and India will be sustained for a generation, unless truncated by political upheaval or natural disaster.

We have to plan for demand to be sustained, but we also have to take a prudent approach and work out how we plan for the boom to end.  This elicits a huge raft of questions about why, when and what to do, that should be exercising the best minds in the country in the immediate future.

How will the operating environment change?

Irrespective of the boom, the world is headed for far more severe carbon constraints than we have seen to date.  This will impact on all aspects of our economy - and not just the minerals industry.

Mining has been remarkably agile and resourceful in meeting environmental challenges in recent years and will need to continue to demonstrate these skills to meet new carbon targets - both in operational terms and in communication challenges.

That being the case - do we use the boom to position ourselves for a much lower emission world?  Do we use some of the cash flow to finance commercial-sized plants in major new technologies, such as clean coal, geothermal and nuclear, and use the learnings to get the costs down?

Do we have the minerals resources to meet sustained demand?

Australia’s mining companies face difficult and complex resource development issues as they pursue a finite resource – declining grades, employment pressures and logistical issues associated with more remote mines and extreme operating conditions.

Ore bodies are often more complex and recovery rates are lower - with consequent higher waste output. Planning and operational decisions are made more difficult by the continuing need to balance developing tougher and less valuable ore bodies against cost and demand predictions.

Environmental constraints, diminished water availability and social issues related to mining operations add to the difficulties, with competing and more complex federal, state and local policy, legislation, regulation and implementation adding to the mix.

Are we developing new minerals resources fast enough?

Australia’s mineral exports - and their revenue stream - have shown dramatic, unparalleled growth in the past couple of years. Both resource company results and the national purse reflect this fact.

But many of our principal ore bodies are, inevitably, being depleted or showing declining ore grades and we need to supplement and then replace them to maintain our minerals output to meet the anticipated demand.

For some minerals, it is widely agreed - among both miners and economists - that our exploration and development effort is lagging. Australia’s comparative share of global exploration expenditure is falling and we don’t have a bank of major new mines ready to bring on stream as required.

Australia has come to depend on mining exports to underpin much of our national wealth and wellbeing. If Australia doesn’t get the exploration-development equation right we face a long-term decline in the size, influence and revenue of the minerals industry which will hurt the economy and our standard of living.

Will we have appropriate polices and infrastructure support?

One of the clear issues emerging from our 2006 Symposium and a major report released earlier this year is that a principal impediment to Australia’s future success is our ability to undertake effective long-term planning.

This is compounded by competing interests at various levels of government, our tendency to plan piecemeal, our history of bottom-up (rather than top-down) planning and our short economic and social timeframe predicated on the electoral cycle.

We will only have the appropriate policies and infrastructure support to best prepare for the outcomes of the boom - upside and downside - if we move to a new form of long-term planning and involve government, industry, academia and the community in a planning step-change.

Will we have the human resources?

The demand for engineers and technologists to support growth and production is unprecedented.  Australia is not alone. Other resource economies face the same issues - and we are in a global competition for people. Government and academic studies predict substantial shortfalls in engineers, mathematicians and scientists (all key to the future of the resources industry) in the decade ahead and beyond.

Unless we tackle head-on the issue of exciting interest among the best and brightest school and university students in science, technology and engineering as a career, we can expect our resources industry to be critically constrained.

We will face the twin issues or being unable to recruit from overseas and being unable to deter our own people, both new graduates and experienced professionals, from moving overseas to nations that value their skills more than we do.

How will we spend the profits?

A real key question rising from the current resources boom is - how do we spend the current and future export profits to optimise the upside outcomes or inoculate us from the downside consequences?

There is political attraction to spend it ‘easy’ on projects for the nation and benefits for its people that demonstrate immediate positive results from our good fortune.

The immediate attraction of these benefits for all of us is obvious, but the tougher decisions to invest for the future will equip Australia far better for the decades ahead -  both from the upside and downside perspectives.

Do we use the cash flow now to position Australia and Australian companies for the future?

The Government use of its surplus to set up the Future Fund and the Higher Education Endowment Fund are examples of what could be done. We must drive for increased investment in education, a greater focus on science and technology, more risk-taking in R&D, a narrower focus on what we do best and a national understanding of and commitment to long-term, over-the-horizon planning in the interests of the whole nation.

This is not just about governments. We all need to move our thinking paradigm from ‘me’ to ‘us’ and work for the longer term to make the best of this once-in-a-generation or once-in-a-century resources boom.