If you missed the introduction to this series, you can find it here. This is the second installment in this extensive series – an introduction to the mining sector in Australia.
Investment in the Australian mining industry is slowing down after the largest boom the country has ever seen. We have our extensive natural resources to thank for much of our wealth and prosperity.
If you believed the news cycle you would think the only people who profited from the mining boom were the "cashed up bogans" working in the industry and the mining companies. Often the truth doesn't make good headlines. In fact, Australia's average disposable income per capita, you, me and all the cashed up bogans included, is now 13% higher (PDF) than it would have been without the mining boom.
Barely a day has gone by during the past two years without a news article mentioning "the end of the mining boom". Although capital expenditure for new projects has dried up in the current climate our quantities of mineral exports have hit new heights. You can consider this the production stage of the mining boom, which is still extremely profitable for our country but less so than during the construction stage which coincided with historically high commodity prices.
The quality and quantity of our remaining resources, combined with our relatively stable political system and economy, will ensure Australia continues to be a major mining investment destination and leading mineral producer well into the future.
What do we have?
"The Lucky Country" has the world's largest economic demonstrated resources (EDR) of iron ore, gold, lead, nickel, zinc, mineral sands and uranium; the second largest resources of copper, silver and bauxite (aluminium); and is ranked in the world's top five largest resources of coal, lithium, rare earths and tin.
If that sounds like a lot to you, it is! We have a large resource inventory of most of the world's key mineral commodities which are used throughout the global economy.
An EDR is a measure of the resources that are established and analytically demonstrated or assumed with a reasonable certainty to be profitable for extraction or production. Classifying a mineral resource as EDR reflects a high degree of certainty as to the size and quality of the resource and its economic viability.
Many of these are commonly classified as either bulk commodities; including iron ore, bauxite and coal; base metals, which are common and widely used in industrial applications such as aluminium, copper and lead; and precious metals, which are less abundant than base metals and include gold, silver and platinum.
What do we export and who to?
Australia is the largest producer of iron ore, bauxite and mineral sands in the world; the second largest producer of gold, lead, lithium, manganese ore and zinc; the third largest producer of uranium; the fourth largest producer of nickel, silver and black coal; and the fifth largest producer of cobalt, copper and diamonds.
Export value by mineral is shown below.
Iron ore is clearly our largest export and $54 billion worth was shipped internationally during FY2014-15, with Rio Tinto Limited (ASX: RIO) and BHP Billiton Limited (ASX: BHP) our two major exporters. Coal (metallurgical and thermal combined) is our second largest export with around $37 billion leaving our shores in FY2014-15.
The principal market data reveals the influence that Chinese demand has on Australia's resources industry. In fact, 60% of our total resources export value in FY13-14 was derived from China and it's no surprise that the health of the industry is linked to the future growth and consumption of China.
Where are the minerals located?
There are approximately 400 operating mine sites producing 19 minerals in significant quantities scattered across Australia, from the cold depths of the Tarkine Rainforest in Tasmania to tropical Weipa, located on the northern tip of the Cape York Peninsula. Although these minerals can be found in most States and Territories, the bulk of the production comes from one or two different hubs for each mineral, highlighted in the map below.
A testament to the quality of the resources, the location of our main production hubs hasn't changed much since they were first discovered. Coal mining in NSW and QLD started in the 1880s. The majority of our gold is still sourced from the WA Goldfields, which experienced a huge gold rush back in the 1890s. The Mt Isa copper deposit was discovered in the 1930s and the vast iron ore deposits of the Pilbara were discovered more recently in the 1960s.
Several of these minerals can be found in the same deposit. BHP Billiton Ltd's (ASX: BHP) world class Olympic Dam mine primarily produces copper, but it also produces significant amounts of uranium, gold and silver.
In the next few articles we'll take a look at each of our main commodities in further depth, including the key Australian and international producers and some of the associated risks to their respective industries.
