15 December 2011

Production targets should be backed up by competent persons

Market confusion the likely outcome if changes aren’t made regarding the disclosure of production targets says ASIC.

According to ASIC’s recent public submission paper responding to issues papers from the ASX and JORC, the reporting of production targets and financial information based solely on Inferred Mineral Resources or exploration targets could lead the market to be misinformed, inferring that the target or prospect will be achieved when in fact a high level of uncertainty actually surrounds the underlying resource.

Currently neither the JORC Code nor the ASX Listing rules explicitly address this issue other than requiring that companies have ‘reasonable grounds’ for making the statement – reasonable grounds being based on completion of sufficient work measured against various modifying factors.

Looking at international equivalents, ASIC noted that unlike ASX’s Option 5A, the South African and European codes don’t allow production targets or statements about future matters implying economic viability based only on Inferred Mineral Resources – at least some Ore Reserves are required.

It is, however, allowed in Canada. Companies are required to make full disclosure by way of technical reports written and consented to by qualified people who generally are independent.

Based on this, ASIC’s response is that production targets and other forward-looking statements should be consented to by a Competent Person under the JORC Code – an issue that neither the ASX or JORC issues paper addressed.

If these changes are implemented companies will have greater certainty over the requirements attached to production level disclosure. An eradication of future unsupported production assumptions will inherently bolster market integrity. However feasibility issues of engaging a competent person and completing sufficient work may increase the compliance burden on junior miners.

For a full copy of the ASIC submissions paper go to:

http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/ASIC-submission-asx-jorc-published-1-December-2011.pdf/$file/ASIC-submission-asx-jorc-published-1-December-2011.pdf



9 December 2011

Wiggins Island – something to be celebrated

As a person who spends a large amount of their time dealing with mining infrastructure, the rate of structural reform and progress in the area can be frustrating.  The Wiggins Island port project is however something to be celebrated.

It should be celebrated for the hard work and persistence of all of those involved - the miners, WICET, the State and GPC. Most of all it should be celebrated by all of the mining industry in Queensland (and further afield).

Wiggins Island will provide a great platform for future infrastructure investment. It will be a platform irrespective of your chosen model. Wiggins established a successful consortium. It has proved to the industry and the lending fraternity that a large infrastructure project can be financed by a large divergent group – a group of large and small miners. The model holds hope for the start-up miner, as well as the established miner in expansion mode.

The financial close of Wiggins Island has come at the right time. The demand for thermal and metallurgical coal remains strong. The pipeline of new and expansion projects (particularly having regard to the Galillee) is huge. That pipeline of development has an equally large pipeline of rail and port developments.

The State of Queensland has recently announced proponents for 6 new terminals at Abbot Point. Each one of those terminals will be wholly funded by the using miners. At least one of the proponents is a consortium of mining companies (again large and small).

Such a scale of development comes with many challenges. There is of course the challenge of finding a skilled workforce to develop the infrastructure. Input costs are forever rising.

The largest challenge however is one of coordination. For infrastructure to be brought on line efficiently, each part of the coal chain needs to be developed in sync. There is no point in developing a mine and port, without a rail solution.

Without coordination the industry faces uncertainty and inevitable delay. To date the Queensland mining industry has suffered as a result of a lack of coordination. For coordination to be effective the only party that can impose it is the Government. We keep our fingers crossed.

This article was written by Freehills Partner Jay Leary.

7 December 2011

Record Mining Investment set to continue

Mining investment is up 74 percent since last year, and 34 percent in the last six months.

Last week the Bureau of Resources and Energy Economics (BREE) published their biannual report on Mining Industry Major Projects – showing the silver (or is that gold?) lining in the face of economic doom and gloom.

At the end of October there were 102 projects at an advanced stage of development with a record high capital expenditure of $231.8 billion.

So can we expect more for 2012? Put simply – yes. Investment is set to continue with 302 less advanced projects registering a potential capital expenditure of $224.3 billion.

BREE’s Chief Economist said "Significant growth in coal, iron ore and gas exports are expected to occur over the medium and long term, underpinned by the capital investment that is occurring in these sectors."
Of the 102 advanced projects 40 are Mineral Projects representing capital expenditure of $30.7. billion Major iron ore projects include: CITIC Pacific’s US$6.1 billion Sino Iron Project; BHP Billiton's US$3.4 billion Jimblebar mine and Fortescue Metals Solomon Hub Stage 1 having an iron ore capacity of 60 million tonnes a year at a capital cost of US$2.7 billion. The largest advanced gold project is Newcrest’s Cadia East development in New South Wales, which is scheduled for completion in 2013 with a capital cost of $1.9 billion.

37 Energy Projects with capital expenditure of $170 billion. The Gorgon LNG project is the largest single resource project undertaken in Australia with an estimated capital expenditure of $43 billion.

21 Infrastructure Projects with a capital expenditure of $25 billion. The largest of these is Wiggins Island Coal Terminal which is located in Gladstone at an expected to cost around $2.5 billion to construct.

4 Mineral Processing Plants with a capital expenditure of $6.4 billion. The two largest mineral processing projects are both alumina refineries. The Worsley Refinery Efficiency and Growth project in Western Australia, scheduled for completion in 2012 for an estimated capital cost of US$3.5 billion. Expansion of the Yarwun refinery in Queensland at an expected capital cost of US$2.3 billion.

In 2010-11, New Capital Expenditure increased by 28 per cent to $51 billion, an all time record around three times the average annual expenditure over the past 30 years ($17.1 billion).

In 2010-11 Exploration Expenditure increased 9 per cent to $6.2 billion from 2009-10, the second highest level on record. Nearly all sectors increased their exploration with Coal increasing by 62 per cent; Copper 60 per cent; Base Metals 46 per cent; Uranium 26 per cent; Iron Ore 27 per cent; and Gold 13 per cent. Petroleum was the only major sector to slide decreasing by 8 per cent.

The accumulated capital expenditure of Completed Projects in the last six months totalled $9.6 billon. The largest energy project was the Cossack Wanaea Lambert Hermes field redevelopment and floating production, storage and offtake vessel located at the North West Shelf in the Carnarvon Basin, Western Australia, completed at a cost of US$1.47 billion and has the capacity to produce up to 60,000 barrels a day of oil. The Kitan oil project at a capital cost of US$600 million has an oil production capacity of 35 000 barrels a day.

What a great time to be a part of such a vibrant and prosperous industry

For a full copy of the report go to:
http://www.bree.gov.au/documents/publications/resources/BREE_MEMP_NOV2011.pdf

2 December 2011

Can the mining sector lead diversity?

The resources sector is no different than any other male dominated industry, where attracting and retaining women in non-traditional roles and developing women to senior leadership roles is a difficult challenge.

But the need to increase female participation is even more compelling in this sector, where projected labour shortages could impact Australia’s future prosperity.

Government projections are that Australia will require 70,000 additional skilled workers for major resources projects over the next five years, and they have accepted the recommendations of the National Resources Sector Employment Taskforce, including the need for a strategy for attracting and retaining women in the resources and construction sectors.

So what now?

Cath Pattenden of the University of Queensland is currently reviewing progress for women in the resources sector.

Her statistics are telling. Currently the sector employs 17% women compared to the 45% women in the broader workforce, with only 3% in site-based roles.

Men earn more than women at almost every level. EOWA 2010 Census data shows that materials companies represent over one quarter of the ASX 200 index, yet only 4.3% of executive key management and 5% of board members are women.

The good news is that this is a marked improvement from the late 80s when less than 10% of workers in the resources sector were women.

However, these statistics show there is lots of scope for improvement.

While the solutions to the challenge of increasing female participation are many and varied, retention of female talent will no doubt be improved with better management of workers through pregnancy and early years of parenthood.

To help resources sector employers, the Minerals Council of Australia commissioned Freehills to develop a comprehensive parental leave and flexible work toolkit aiming to inform and educate employees, supervisors and managers of their rights and responsibilities around parental leave and flexible working arrangements.

It is one step to address a complex problem.

The challenges in the resources sector are well known: low enrolment of women in relevant tertiary courses; lack of women applicants for non-traditional roles; 12 hour rosters which are inconsistent with most childcare arrangements; remote locations, which in some cases lack facilities for families; the fly-in/fly-out schedules used at some remote locations; the lack of female mentors and role models; perception that the tough work cultures do not embrace diversity; concerns about safe jobs during pregnancy.

The less obvious challenges involve: the social conditioning that still subtly directs our children from birth towards traditional gendered roles (trucks vs dolls); the unconscious bias that affects most of us to more readily associate women with family and men with work; the unequal share of domestic responsibilities, which shows that working women still bear the majority of domestic and caring responsibilities; the operation of homophily, which is the tendency of individuals to associate and bond with similar others (eg. men with men).

There is no question that improving gender diversity in the resources sector is difficult. At the same time, there is recognition that change will help overcome projected labour shortages in the future and result in better workplaces and more profitable businesses.

Earlier this year the Minerals Council of Australia hosted a Women in Mining workshop which showed there is strong momentum for change among industry bodies, employers and women’s networking groups.

Their request is for the companies to show leadership with real actions that support the goal of increasing female participation and leadership.

The new ASX reporting requirements on diversity policies with measurable gender targets is an important starting point.

There is a great opportunity for change with the support of all industry participants, however those highly committed women in mining need lots more support to achieve that change in the next five years.

This article was written by Freehills partner Kate Jenkins and was first published by Australian Mining.