Property investors need not fear mining companies’ tantrums: Terry Ryder

Property investors worry unduly about the utterances of resources companies.

They get the decision jitters whenever miners spit their dummies at any circumstance that suggests they might not get their own way. 

Investors need to understand that the big mining companies of Australia are the masters of scare campaigns. That’s how they negotiate with government, with unions and with landlords: they threaten to scrap planned projects or shut down existing operations or refuse to sign leases for houses to accommodate their staff. 

This week there were hints from BHP Billiton that the Olympic Dam expansion in South Australia is in doubt – and media outlets worked themselves into a minor frenzy over it. 

I have to wonder: don’t journalists know anything that goes on? BHP Billiton has been casting doubt on the $30 billion expansion plan for a long time. 

Meanwhile, the company has continued to advance the project and recently handed out substantial contracts for components of it – in other words, it’s already under way, although the final investment decision is not yet made. 

That’s normal for big resources projects. By the time the board of directors gives its formal approval, the project is already being built. The $40 billion Gorgon gas project in Western Australia had handed out contracts worth many billions of dollars long before the formal board decision was taken. 

It’s the same with Olympic Dam and numerous other big resources ventures around Australia. 

Every time the federal government comes along with a decision that big miners don’t like – like the carbon pricing scheme and the minerals tax – the mining lobby runs a scare campaign, always with the enthusiastic support of the federal opposition. 

They “warn” that mines will close, proposals will be scrapped, tens of thousands of jobs will be lost and the boom will be snuffed out. 

If they and Tony Abbot had been right, dozens of major resources projects would have been killed off by now. Of course, the opposite has happened: the iron ore magnates of Western Australia are expanding like never before and the coal barons of Queensland and New South Wales are investing unprecedented billions. 

Around Australia $80 billion is being spent on building new export facilities. 

Yet the mining lobby continues to hint at scrapping projects and shutting down busy operations which deliver product for which there is massive overseas demand. 

Xstrata has declared the death of the $6 billion Wandoan coal project in Queensland more than once. Yet it has persisted with advancing the project, continued to buy large chunks of land to facilitate it and fought very hard to win a court case earlier this year to allow it to proceed. 

BHP Billiton, through its alliance with Mitsubishi in a venture known as BMA, has announced the closure of the Norwich Park coal mine near Dysart in Queensland, having become fed up with recalcitrant unionists who have hampered operations there for the past 18 months.

 Meanwhile, it’s investing $4 billion in creating a new coal mine a short distance down the road at Moranbah. 

It’s also refusing to sign new leases on houses in Moranbah, because it’s unhappy with the high rent levels. 

This is how big miners negotiate. We’re big, we’re powerful, if you don’t toe the line we’ll take our ball and go home. 

We really shouldn’t take these things to heart. It’s not the end of Dysart as a mining town, nor does it mean Moranbah will no longer provide positive cashflow rental returns. 

The Olympic Dam expansion will happen, at some point when the proponent is ready, and then Roxby Downs will grow and places like Whyalla and Port Augusta will benefit from their roles in the project. 

Xstrata’s big coal mine will go ahead, despite all messages to the contrary, and Wandoan will grow exponentially from its current population of 400 (especially as there are other mining proposals in the area, plus a $1 billion rail project). 

Investors should think long term, as the big miners do, and ignore the background static in mainstream media – most of it written by people who don’t really understand what’s going on.

Terry Ryder is the founder of hotspotting.com.au and can be followed on Twitter.