New mining investments crash to decade lows
Activity in the resources sector continues to tumble, with a new government report showing investment commitments to major projects are now at the lowest level in more than a decade.
The Bureau of Resources and Energy Economics (BREE) biannual Major Projects Report has found that only three projects worth a total of $597 million received a positive 'final investment decision' in the six months to October.
The report notes that it is the lowest number and value of projects moving to being a committed investment in more than a decade.
On BREE estimates, mining and energy companies are currently committed to developing 44 projects with a total value of $228 billion, with LNG projects accounting for 87 per cent of the work.
As well, 8 projects with a total value of $22.2 billion project failed to progress from feasibility studies in the six months to October.
Another 17 projects which had been publicly announced were removed from the major projects list after being abandoned or having no work done on site for 12 months.
More than half the projects that were dropped off the major list were coal mines – primarily in Queensland – which had been valued at $8.2 billion.
"The environment of lower prices has encouraged resources companies to focus on improving productivity and reducing costs of production rather than investing in additional capacity," the BREE report noted.
BREE forecasts that the trend is only likely to accelerate.
"The growing incidence of project schedule delays is likely to result in a more rapid decline in the stock of mining investment," it forecast.
"The current operating environment of lower prices and high costs is not conducive to project development or further investment in the sector."
A cut in already historically low interest rates is unlikely to stimulate investment in the sector either.
"In most business models, this (lower interest rates) will not be sufficient to offset the effect of lower prices in their decision-making," the report argued.
"The surge in global investment activity over the past few years has contributed to large volumes of supply entering commodity markets, putting considerable downward pressure on prices."
However, the pessimistic tone is moderated to a degree by noting that business investment in resources is cyclical.
"Australia has many world class mineral and energy deposits that can be developed when market conditions permit," it added.
"The cost pressures that have affected the sector are beginning to abate in response to reduced construction activity and cost-cutting measures undertaken by companies."
