COURSE: BUSINESS ENVIRONMENT Brief Outline of Project: Scope of Mining Sector in Australia Batch: PGDM 2012-14 Section: A Project

Group No: 1 Country: Australia Total Words: 1989 Total Pages: 09 Group Members:
Sr. No 1 2 3 4 5 6 Name Roll No.

Aakash Kishan Amey Mairal Ameya Sood Anirudh Singhal Anuj Job Mathew Anusha Lakshmi Krishnan

2012002 2012035 2012036 2012044 2012057 2012060

TERMS OF REFERENCE

PROJECT TITLE : PROJECT DURATION : PROJECT START DATE: CONSULTANCY NAME: COMMISSIONED BY:

Australian Mining Industry Outlook Market Opportunities and Entry Strategies, Analysis and Forecasts. 12 Months* 14 March* EcoForecasters 6 A Pvt. Ltd.

1. BACKGROUND:
The Project basically provides an overview of the viability of the Mining Industry in Australia. The Australian economy is at the cross roads of recovering from the financial crisis that hit the world, we intend to study the impact of the Australian economy specific to the Mining Industry there. Australias abundant mineral resources, sophisticated mining equipment, technology and services industry, and proximity to the rapidly growing Asian markets, have made it a world leading mining nation with an investment pipeline of $430 billion. In 2011, Australias energy and mineral commodity export rose to a record A$190 billion, a 15 per cent increase on the previous year signifying continued strong demand for minerals and commodities from China and other parts of Asia.

In 2010-11, the mining sector contributed approximately 7.7 per cent to Australias total Gross Value Added, a total dollar gross value of approximately $96 billion. Australia is endowed with an abundant supply of mineral resources, most of which can sustain current rates of mine production for many decades. Australia has the worlds largest reserves of brown coal, nickel, lead, silver, uranium, iron ore and zinc Australia has worlds second largest reserves of bauxite and tantalum Australia has the worlds third largest reserves of copper Australia has the worlds fourth largest reserves of silver

2. OBJECTIVES: The objective of this assignment is to propose Australia as a feasible destination for investment and also report on the highlights of the growing Mining industry. This study also proposes to identify the future prospects of Australia by taking into consideration the economic variables and the structural changes being faced by the Australian economy. The following tasks will be accomplished within the framework of the assignment: Comprehensive study and analysis of the strong economic credentials of Australia. In depth analysis of the mining sector in Australia Analysis of the structural features of the economy also a SWOT analysis on the evolving structure of the economy that affects the Mining industry. To analyze the expected economic health of the nation in the coming 12 months To find out the government policies that are likely to affect the economic environment of the Mining sector. On the basis of the analysis a coherent recommendation will be made regarding whether or not it is feasible to expand the area of operations to the Australian Mining Industry.

INTRODUCTION: Australia is one of the leading producers of several minerals within the global mining industry.. The volume of minerals produced from the Australian mining industry will increase from 994.7 million tons in 2011 to 1.4 billion tons in 2016 at a compound annual growth rate of 7.14% over the forecast period 2012 to 2016 (Source: BRIC data). This growth rate has been influenced by the relatively low value of mining in 2011 due to the flooding in the country, which postponed the mining activities. However, the growth in the mining production volume will benefit from the completion of new mining projects all across Australia, most notably the projects by Rio Tinto, BHP Billiton and Xstrata (Source: Timetric Research Press release).
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Key Highlights of the Australian Mining Industry: 1. Australias iron ore production output is expected to record the robust growth rate at a CAGR of 8.96% over the forecast period. With the iron ore production set to increase from 465 million in 2011 to 706.9 million tons in 2016. 2. Australias coal production output is expected to record average annual growth rates of 6.5% over the forecast period, from 405mtpa in 2011 to 561mtpa in 2016. The BRIC data forecast for coal production in Australia was revised down from 425mtpa to 405mtpa in 2011, due to the effects of flooding which postponed mining production in Queensland at the start of the year. 3. Due to its strong growth potential and high-quality infrastructure, Australia contains some of the leading companies within the global mining industry. The multinationals include Australian companies, such as BHP Billiton and Newcrest Mining, and large foreign mining companies, such as Rio Tinto, Norilsk Nickel and Xstrata. DATA, VARIABLES AND METHODOLOGY: The data used in this report is mostly got from Australian government websites, the Reserve bank of Australia report and data from IMF, BRIC and various other international agencies. The methodology basically focuses on secondary research data and the report is basically a descriptive analysis of the Australian Mining Industry outlook for the year 2013-2014. The various macroeconomic variables that are included in the report are: Real GDP past, current and forecasted growth The unemployment rate and the inflation rate Current Monetary and Fiscal policy the country is adopting.

Inflation Rate
3 2.5 2 1.5 1 0.5 0 5.6 5.5 5.4 5.3 5.2 5.1 5 4.9 4.8 4.7

Unemployment Rate

Fig:1

Jan'12 Feb'12 Mar'12 Apr'12 May'12 Jun'12 July'12 Aug'12 Sep'12 Oct'12 Nov'12 Dec'12

Fig:2

GDP(Quarterly)
3 2 1 0 Sep'12 Mar'12 Jun'12 Sep'12

Fig:3 1. Structural Features of the Economy

Fig:4

In recent years, the rate of structural change appears to have increased, driven by the rise in resource export prices and mining investment. The economy has been transformed from

Fig: 5

one centered on the production of primary products to an urbanized economy mainly producing services of the states of Queensland and Western Australia within the economy. Consistent with this, a number of measures suggest that the rate of structural change picked up in the late 2000s

1. UNEMPLOYMENT RATE:
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Underneath this low and steady unemployment rate, there is a great deal of movement at the individual worker level. Although it is still typical for most people to have relatively long tenure in a single job, a large number of people change jobs each year. This changing in jobs occurred for a range of reasons. Around three-quarters were voluntary, including for personal reasons or to take advantage of new opportunities. The remaining quarter was involuntary Fig: 6 The structural changes in the economy are clearly one factor contributing to this movement of people.

These disparate trends have added to a general sense of uncertainty in many parts of the community. The large variation in experience across industries is probably one reason why many people view the labour market to be quite weak.

Fig: 7

Fig: 8

The overall impression from these various facts and figures is that the labour market has coped reasonably well with the significant changes taking place in the Australian economy.Workers have moved in large numbers to the industries that are benefiting from growth in Asia and the increasing domestic demand for services.
Fig: 9

The exchange rate appreciation has been an important factor, helping to maintain a reasonable balance between demand and supply during what has turned out to be a once-in-a-century investment boom. Another factor has been Australia's monetary policy regime, which has provided a strong anchor for both inflation and wage expectations. Looking forward, it is clear that the structure of the economy will continue to evolve. Over time, the strong growth in investment in the resources sector will give way to a large increase in exports of resources. This will likely mean some moderation in the demand for labour in the resources sector, and other forms of activity and employment will need to pick up. As this transition occurs, the types of new jobs that are created will also continue to evolve.

Current State Of Economy and Assessment Of Future Economic Scenario

The level of output is well above pre-global financial crisis levels and the economy is expected to grow around its trend rate over the next two years. GDP growth is forecast to be 3 per cent in 2012-13 and 3 per cent in 2013-14, with the economy expected to outperform every major advanced economy over this period. MINING SECTOR Outlook to remain cautious for the coming year.: The mining industry appears to be in survival mode, with only 25 per cent of companies planning to invest in major CAPEX projects this year compared with 52 per cent last year. Reasons for curbing spend on CAPEX, factors including volatile prices,tough market conditions and increasing business costs The current business and policy environment is tough on miners: many existing agreements face review soon under the Fair Work Act hence, mining leaders are finding it difficult to achieve full productivity. They also anticipate massive cost spikes with the carbon tax now in effect and warn that it will make Australia uncompetitive on the international market.

Coal and iron ore prices are significantly down, adding to the growing challenges: Global economic uncertainty in Europe and North America is having an impact on the Asian economies and, in turn, Australia. Infrastructure needs to be prioritized by the government: The vast potential of mining projects in Queensland and Western Australia has highlighted the need for more economic and social infrastructure in these regions Global financial stresses eased somewhat in the early months of 2012, after the period of acute instability in late 2011, but the global economy remains weak

Fig: 10

ASSESSMENT OF THE FUTURE ECONOMIC SCENARIO Most of the influential economic groups have cut down the forecast for Australia's growth rate. The International Monetary Fund has trimmed its 2013 forecast for Australia's economy. However, the Fund says unemployment is only likely to rise slightly, and the wave of mining investment has insulated the nation against much of the slowing in Asia. The report published in the National Australia Bank called the CAPEX and exploration data suggests that mining investment may be approaching a turning point.
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On the basis of the past engineering construction commencements, there are reasons to believe that there is a risk of a decline in 2014 big enough to take 2% points off GDP growth in that year unless another mega projects starts soon. Forecasted investments in Mining: With many mega projects in the pipeline and increasing coal extraction will increase in Australia. However the rate of interest will start decreasing. Given the Q4 GDP of Australia outcome and upward revision to Q3, they have marginally strengthened their forecast for 2013, with growth expected to be 2.3% (was 2.0%) and unemployment rising to around 5% by late 2013 (unchanged). For 2013/14, that implies GDP growth of 2.6% (was 2.8%) and 3.1% in 2014 (was 3.3%).

They have revised our cash rate expectations. RBA now expected to cut by 50 bps in 2013 (possibly June & Nov).. But with weak underlying demand continuing, unemployment will rise to 5.7% by mid year, with little sign that non-mining investment will ramp up. RECOMMENDATION:There is a sentiment of caution prevailing in the Australian Mining Industry. The concerns apart from the already mentioned falling rate of return are compounded by the following reasons: Falling commodity prices Rising business costs Complex industrial relations legislation Uncertainty around the political environment and political concerns. Thus, the future of Australian Mining Industry looks like a weak reflection of its glorious history. Once there was a time where the whole of the Australian economy was thriving on its Mining Industry, but the future looks bleak, and we at EcoForecasters would recommend you to abstain from Investing in the coming year. References: 1. 2. 3. 4.

www.rba.gov.au www.smh.com.au Australian Bureau of Statistics, resources.news.com.au