Mining Industry Less Optimistic About Investing in Australia -Report
09/16/2012| 09:00pm US/Eastern
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By Robb M. Stewart
MELBOURNE--The mining industry is more pessimistic about investing in Australia than in other key mining hubs and views the country as expensive and risky, according to a report released Monday by law firm Baker & McKenzie.
Three-quarters of the mining and finance leaders surveyed for the report found that investing in Australia's mining sector has become more complicated and costly, thanks to increasing regulatory and environmental obligations, complex and uncertain project development requirements and the rising costs of mine development and operation, Baker & McKenzie said.
"Getting a project across the line in this country is now harder than it should be," said David Ryan, the law firm's global head of mining. "We need to look at reducing the complexity of mining regulation and sovereign risk, otherwise we risk companies deploying their capital elsewhere."
A number of high-profile mining projects, including BHP Billiton Ltd.'s (>> BHP Billiton Limited) multi-billion dollar expansion of its Olympic Dam copper and uranium mine in South Australia state, have been deferred in recent weeks as companies have refocused on cutting costs to fight being squeezed by slumping commodity prices. Mining companies also have been shedding jobs across the country and closing loss-making operations.
Baker & McKenzie said its survey found investors are comforted by Australia's security of land-holding rights, political stability and enforcement of contracts, but the country currently is seen by some as presenting greater sovereign risk than lower-cost areas such as Indonesia and South Africa. The report said Canada stood out from the six jurisdictions it reviewed for a competitive tax structure, stable political landscape and well-developed capital markets.
"Mining is an industry which involves large, up-front capital investments and long project lives.," Mr. Ryan said. "Investors crave certainty, and miners need more certainty regarding the application of taxes and royalties and land use restrictions."
The report said that Australia's minerals resource rent tax on iron ore and coal profits and its carbon emissions pricing scheme, both of which came into effect in July, are seen by the industry as discouraging investment. It found that 61% of those surveyed believed there is too much government involvement in the mining industry.
While 52% of respondents don't currently see sovereign risk as a material factor in decisions to invest in Australia, 72% said the they see sovereign risk increasing, according to the report.
The report said that although investment into Australian mining is strong, there are clearly a number of concerns surrounding the complexity and expense of projects. Baker & McKenzie said it recommended Australia address the complexity of approvals and pace of permitting for mining, the costs of operations by allowing an increased level of skilled foreign labor and streamline processes for obtaining environmental approvals, among other things.
The law firm interviewed 301 senior figures in Australia, Brazil, Canada, China, Indonesia and South Africa for its report.
Write to Robb M. Stewart at robb.stewart@wsj.com
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