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Australia Must Curb Costs to Lure Energy Projects, Minister Says

Australia needs to reduce project development costs in the mining industry to keep attracting investment as the cushion provided by high commodity prices diminishes, Resources and Energy Minister Martin Ferguson said.

“All of us have to be conscious about better managing these projects so as to continue the pipeline of investment,” Ferguson said in an interview with the Australian Broadcasting Corp.’s Inside Business program yesterday. “When you’ve got very high iron ore or coal prices, well you can afford to have a bit of fat in the system, have a few over-runs, but the world’s completely changed.”

Australia’s economy grew 2 percent in the six months through June, the fastest first-half expansion in five years, on the strength of resource industry investment and consumer spending.

Estimates of a A$230 billion ($238 billion) pipeline of future projects are being reviewed as plunging iron ore prices prompted mining companies, including BHP Billiton Ltd. and Fortescue Metals Group Ltd., to put off projects.

Iron ore fell 37 percent between Dec. 30 and Sept. 6 to its lowest price in almost three years. Prices have since rebounded, trimming the year’s loss to about 11 percent, according to data compiled by The Steel Index Ltd.

BHP, the world’s biggest miner, in August delayed $68 billion of projects. Last week it agreed on a four-year extension to develop its Olympic Dam copper and aluminum mine in South Australia because it faced unforeseen economic circumstances preventing it from moving forward as planned, the state government said.

Fortescue in September deferred development of its Kings deposit and completion of a fourth berth at its Herb Elliott Port. It subsequently said it may resume the iron ore project in stages before year-end as prices recover.

Coal Prices

High-cost coal mine projects have been delayed as the price of coking and thermal coal falls in world markets, Ferguson said. Producers such as Indonesia are increasing output, putting more pressure on Australian miners, he said.

Costs on Chevron Corp.’s Gorgon liquefied natural gas project off the nation’s northwestern coast may be A$20 billion ($20.7 billion) more than projected because of a high currency, labor union demands and low productivity, the Australian Financial Review reported last week.

“This is not good in terms of attracting further investment,” Ferguson said of the Gorgon announcement. In September, Chevron said it was reviewing the costs and schedule of the development, adding that construction had been affected by weather, logistics and labor productivity.

Monitoring Costs

Nations such as Japan, China, South Korea are “monitoring our project costs, delivery and time lines and I think it’s better that we’re forewarned by what’s happening at the moment rather than taking it for granted that these projects will just willy nilly come our way,” he said.

The government is working on reducing regulations that impede projects, Ferguson said. Companies need to better manage projects and labor unions must also be involved.

“We’ve all got to accept we’ve got to pull our weight,” he said. “Look, we’re fortunate. There’s good jobs and investment at the moment but that window through to 2025 is there to be grabbed.”

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