The Natural Resource Potential of New Zealand

Richard Barker Consulting Geologist

March 2008

Natural resource potential of New Zealand. March 2008

Overview
The minerals, oil, gas and coal being produced in New Zealand have a value of about $4,500 million per year, and contribute more than $2,000 million to exports. Potential exists to maintain and expand the range and value of what we produce. Demand for resources is being driven by economic growth in developing countries that is resource intensive while basic infrastructure taken for granted in developed countries is established. This increased demand is likely to continue for the long term. A srl mn rl e lth is often used to explain its higher living standards relative to New Zealand. ut is i a w a aa e Australia has worked hard to achieve this, and major government and industry initiatives are continuing in order to stay competitive. By comparison, New Zealand has done little over the last 25 years to make the most of its resource potential. The impediments to making progress here can be divided into those things ta c n b c a g d and those h t a e h ne , t ta c n I n ayN w Z a n i w lp sin dfr h s ti sta c n b c a g dgeological h t a . r i l e e l d s e o i e o to e h g h t a e h n e o cl a l t o n t resource potential, political history, human resources and government traditions. The obstacles are mainly things that can be changed.

Summary
New Zealand is producing minerals, coal and petroleum with a total value of about $4,500 million per year, and these resources are contributing about $2,000 million to exports. The metallic mineral potential of New Zealand has a gross in-situ value of more than $140 billion with lignite alone at least an additional $100 billion. In addition, New Zealand has good potential for the discovery of new oil and gas resources. The investment environment for exploration in New Zealand is not attractive. For example a 2007-08 survey carried out by the Fraser Institute, a Canadian independent educational and research organisation ranks the policy environment in New Zealand at No 44 out of the 68 jurisdictions assessed. NZ ranks behind all of the Australian states and Canadian provinces with which we compete for exploration investment and expertise. Energy exploration investment is now compromised by changing energy policies, particularly a proposed new law that would restrict coal and gas fired electricity generation. T ei p dm nst ras gN wZ a n rs uc p tnila b o ec m .T e i l e h m e i e t o e li e e l d e o re oe t c n e v ro e h y n u : in a s a cd Fragmented government administration and management A complex, uncertain regime for mineral ownership Major deficiencies in the access regime that is created under the Crown Minerals Act Energy policies that create uncertainty and discriminate against coal and gas An uncompetitive environment for investment in comparison with other, similar countries.

T eb rest teras t no N w Z a n rs uc p tni c nb o ec m h ar r o h e lai f e e l d e o re oe t l a e v ro eif its potential value is i i o a s a recognised, and its management given a higher priority.

Natural resource potential of New Zealand. March 2008

Contents
Background.................................................................................................................................................. 3 The NZ resource sector in 2008 ................................................................................................................... 3 Minerals and coal..................................................................................................................................... 3 Petroleum ................................................................................................................................................ 4 Natural gas .............................................................................................................................................. 6 Resource potential ....................................................................................................................................... 6 Oil and gas............................................................................................................................................... 7 Metals ...................................................................................................................................................... 7 Aggregate and industrial minerals........................................................................................................... 11 Coal ....................................................................................................................................................... 12 Development potential................................................................................................................................ 14 Oil and gas............................................................................................................................................. 14 Coal ....................................................................................................................................................... 14 Metals .................................................................................................................................................... 14 Non-metallic minerals ............................................................................................................................. 15 Changes needed to realise potential .......................................................................................................... 16 Government administration and management......................................................................................... 16 Mineral ownership and access................................................................................................................ 16 Oil and gas............................................................................................................................................. 17 Coal ....................................................................................................................................................... 18 High value minerals................................................................................................................................ 18 Aggregate .............................................................................................................................................. 18 Exploration initiatives.............................................................................................................................. 19

List of Figures
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 IMF Commodity Price Indices IMF Metal Price Index deflated by US CPI Value of NZ Mine output 1999 - 2006 NZ oil production 1970 - 2006 Sedimentary basins of New Zealand Natural gas users 2006 NZ Natural gas production 1970 - 2006 NZ gas discovery forecast Metallic minerals excluding gold Gold mines, deposits and prospective areas Industrial minerals Coal exports 1998 - 2006 Coal fields and operating coal mines Exploration spending NZ and global NZ gold production and exploration spending 3 3 4 4 5 6 6 7 9 10 11 12 13 14 18

List of Tables
1 2 3 Export value of main primary industries Potential value of metallic mineral resources Summary of coal resources 6 8 12

Natural resource potential of New Zealand. March 2008

Background
Towards the end of the 20th century real prices for many commodities including petroleum and minerals were at historical lows, and for some metals (e.g. copper) probably at 20th century lows. The e e o o y of n w cn m the 21st century was to be dominated by new technology, the internet and the communications sector. IMF Commodity Price Indices
250
120

IMF Metal Price Index deflated by US CPI

200

100

150

80

100

60

50

40

0
20

1957

1961

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

Energy index includes oil, gas and coal. Agriculture index includes timber and wool, but not dairy products. Jan 1992 Jan 2008 (2005 = 100) Source: IMF

Metals Price Index, includes copper, aluminium, iron ore, tin, nickel, zinc, lead, and uranium price indices. (1957 = 100) Source: IMF

Figure 1

Figure 2

Energy and minerals were seen in many developed countries (including New Zealand) as eco o y old nm sunset industries that were struggling to survive. In New Zealand the resources sector was sidelined as a government priority for example new research funds were diverted away from the traditional commodity based fields into tee e o o y. h nw cnm Since 2001 this situation has been reversed with commodities (minerals and energy particularly) being among the most profitable industry sectors (Figure 1). In 2000 the market value of Cisco Systems, the w r l d g internet company, was greater than ta o te w r 1 l g s mn g c m a is ols e i d an h t f h ols 2 a e t in o p n d r i e combined. In 2008 Cisco is still a large and successful company, but its value is significantly less than that of BHP Billiton, the largest mining company. Although commodity prices have risen strongly since 2001, real metal prices are not exceptionally high by historical standards (Figure 2). Rising living standards in developing countries are creating demand for energy and building materials that shows no signs of abating. A rare opportunity now exists om k m r o N wZ a n rs uc p tnil t a e oe f e e l d e o re oe t . a s a

The NZ resource sector in 2008

The value of the minerals produced by mining operations in New Zealand has increased by 93% since 1999 to $1,500 million in 2006, the latest year for which complete statistics are available (Figure 3). The increase is due mainly to increases in the volume and value of coal and aggregate which is used for building and road making. Further increases are likely to be reported for 2007. New Z a n p t l m po u t ni now e l d er e a s o u rd ci s o increasing rapidly after a decade of decline, and the value of oil produced in 2008 is predicted to increase three-fold from that of 2006.

Minerals and coal

The NZ mineral industry produces more than 50 million tonnes of minerals (including coal) each year, with aggregate for building, construction and road-making accounting for close to 70% of this total.

2005

Agriculture

M etals

Energy

Natural resource potential of New Zealand. March 2008

Value of NZ mine output 1999 - 2006

1600 1400 1200 1000
$million

800 600 400 200 0 1999 2000 2001 2002 2003 2004 Coal 2005 2006

Metals

Non metals

Source: Crown Minerals

Figure 3

The greatest value of the minerals sector to NZ is through its vital, supportive function for other industry sectors, and its contribution to export income. Growth sectors such as the dairy industry depend heavily on fertilisers and road transport for which industrial minerals and aggregates are essential. Mineral production is concentrated in regional NZ, supporting growth away from the main cities.

Changing public opinion When investigations into reopening the Martha mine at Waihi began in the 1970s there was a high level of concern about its effects. Subsequent soundings of public opinion have shown increasing support for the mine. The most recent survey, commissioned by the Hauraki District Council in 2004, found that 92% believed that gold mining provided economic benefits to Waihi, while 7% thought there were no benefits.

Coal, gold, ironsand and industrial minerals (notably high quality china clay) are the main exports, earning New Zealand more than $700 million per year. Within New Zealand, aggregates with a value of more than $500 million are used to build and maintain roads, and are the main ingredient in concrete. Industrial While 17% felt they were adversely affected minerals are used for building (e.g. cement making more than a (e.g. by vibration and noise), 82% thought million tonnes is made each year at two plants) and by a range of they were not adversely being affected by other industries. These include paper making, manufacturing, mining. steelmaking, gold ore processing, water treatment and farming. More than 2 million tonnes of lime and 15,000 tonnes of dolomite were NZ Oi l P ro duc tion 1970-2006 produced for the farming sector in 2006.
25

Petroleum
T e c r n ea o N p t l m h ur t r f Zs er e e ou production began in the late 1960s and grew strongly until 1988 reaching a peak of more than 20 million barrels. It declined between 1998 and 2006, due mainly to reducing output from the Maui field. The value of oil being produced in New Zealand is expected to reach about $2 billion in 2008, a new high due to increasing output from newly developed fields Tui, Pohokura and Maari.
Production (million barrels)

20

15

10

0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Source: Ministry of Economic Development. condensate. 2008 data is estimated

Includes crude oil, naphtha and

Figure 4

Natural resource potential of New Zealand. March 2008

Sedimentary basins of New Zealand Figure 5 I 2 0 N wZ a n s l n 0 6 e e l d e -sufficiency in oil was 17%, the lowest it has been since 1980. It is now expected a s f to reach 50% during 2008, and may increase further with the development of the new fields. Ongoing exploration is essential just to maintain this level of self sufficiency in the future.

Natural resource potential of New Zealand. March 2008

Natural gas
NZ Natural gas production 1970 - 2006 Gas users 2006 (percent)
Net Gas Prodcution (Bcf)
250

200

National transport, 0.1 Industrial, 20.2

150

100

Commercial, 3.3 Residential, 4.6 Ammonia Urea, 4.8 Methanol, 10.6 Electricity generation, 56.4

50

0
1970 1975 1980 1985 1990 1995 2000 2005

Source: Energy data file 2007

Source: Ministry of Economic Development

Figure 6

Figure 7

Since its first development in 1970, gas production increased to more than 200 Bcf in 2000. Gas was produced from 12 fields in 2006, all of them within the Taranaki Basin. The main use of gas is for generating electricity, with industrial uses and methanol production significant users also. The total value of gas production is about $1,000 million per year. It accounts for more than 20% of New Zeal d ttl r ay a oa pi r ns m energy supply. Royalties on oil and gas of more than $110 million were paid to the government in 2005, and these are expected to rise strongly as oil output increases.

Resource potential
New Zealand is rich in natural resources. Our sub-surface resources, gold and coal particularly were major drivers of the early development of this country. Since the mid 20th century oil, gas and geothermal energy resources have been developed as well, and are now major additional indigenous sources of energy. The output of non-metallic minerals (aggregate, limestone and specialised high value minerals) and their processed products such as cement have increased in line with economic and population growth. N w Z a n p s po u t no high value minerals has been dominated by gold, with total recorded e e l d a t rd ci f a s o production now more than 1,000 tonnes (33 million ounces) with a present day value of more than $NZ 30 billion. Coal production totals more than 270 million tonnes. New Zealand has large resources (about 10,000 million tonnes) of coal, mainly in the form of lignite or brown coal, and ironsand (about 900 million tonnes of titanomagnetite). Min u e l sta 01 o N w Z a n l dae , n s e o fr e mn saen w rh bi tdfr n g s s e h n .% f e e l d a i s a s n ra a d i s fom r i t e r o e a iae o l t other uses. The table summarises recent estimates of the total area of land that is directly affected at present by a range of rural industrial land uses (including mining), and export values.

Table 1: Export value of main primary industries Export value Sector Land area (sq km) ($million per year)
Production forestry Dairy Horticulture, viticulture Mining 18,000 20,000 1,100 40 3,300 7,000 2,200 700

Export value ($/ha per year)

1,833 3,500 20,000 175,000

Sources: Crown Minerals, Ministry of Agriculture and Forestry, Statistics NZ.

Natural resource potential of New Zealand. March 2008

Oil and gas

N w Z a n g srs uc saee t ae at about 2,000 PJ, sufficient to maintain the existing level of e e l d a e o re r sm td a s i output until about 2015. Continuing exploration could see that date extended, and the graph below is based o a a i u p u ie a s sm n o ta p tni. n m x m l s l se s e t fh t oe t l m a b a

NZ gas discovery forecast

500 450 400 350 300
PJ

250 200 150 100 50 0

20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20 20 21 20 22 20 23 20 24 20 25
Kapuni Pohokura offshore W North Island undisc Other developed Kupe frontier undiscovered Maui onshore undiscovered demand

Source: CAENZ 2004

Figure 8 Estimates of potential resources of the Taranaki Basin, New Z a n el d a sonly economic petroleum producing basin have varied widely between 79 and 1,144 million barrels oil equivalent, indicating the uncertainties that surround such assessments. Expert opinion is that large fields remain to b d c v rdi N w Z a n e i o ee n e e l d s a s petroleum basins, given their size. The recent discovery of major new oil and gas resources in the Santos Basin in the deep continental margin of Brazil are a reminder that the more you look the more you find. 1 These new diso ei o lc a g terg n l n e e g b l a n eo e eg p w r. c v r s c u h n e h e i a a d v n l a b l c f n ry o e e d o o a Unconventional resources such as gas hydrates may become significant in the future, but the technology to develop them is yet to be developed.

Metals
NZ has excellent potential for the discovery of new, high value minerals including platinum, gold and other metals. N w Z a n potential mineral resources were assessed by GNS Science in a study in 19992. It e el d a s identified potential for 16 metals in 32 different types of mineral deposit. These potential metallic mineral resources were valued at $86 billion using 1999 values, based on conventional resource modelling techniques. Real prices of most metals and minerals were at historical lows in 1999. Since then further investigations and price rises have increased the potential value of the assessed resources to more than $200 billion. More detailed studies have now been carried out into the mineral potential of the Northland and Otago Regions, and the Thames-Coromandel and Hauraki Districts. Table 2 lists details for 7 metals gold, silver, platinum, copper, iron, molybdenum and titanium. The values aed r e f m te r ei d r h Mineral potential of New Zealand e o ree t ae , p ae using 2008 prices. v o rs uc sm ts u d td i Potential resources of these 7 metals now have a value of close to $140 billion. Potential is also recognised
1 2

The Economist, February 12th 2008. Christie AB, Brathwaite RL,1999. The mineral potential of New Zealand. Institute of Geological and Nuclear Sciences science report 1999/4

Natural resource potential of New Zealand. March 2008 for deposits of other metals that include antimony, chromium, lead and zinc, nickel, rare earth metals, tin and tungsten. Occurrences of all of these have been located in New Zealand, and several have been produced in small quantities. The resource values in the table are based on current metal prices and an assessment of the probability of finding deposits of specific geological types. New Zealand data is used where it is available (e.g. for gold deposits) but in other cases the assessment is based on similar geological environments in other countries. The values are gross, in situ values and give an indication of potential total value. They are not predictions of what is achievable in the near future. Table 2: Potential value of metallic mineral resources Metal Deposit type Potential value $NZ million
17,350

NZ Mining

Main locations

Gold

Mesothermal

Epithermal

18,800

Alluvial gold

5,500

Macraes mine, Otago and Globe-Progress mine, Reefton are operating Martha and Favona mines at Waihi are operating Past mining very extensive in Hauraki region Operations in West Coast and Otago. Large historical production Sams Creek, deposit in NW Nelson is undeveloped As for epithermal gold None currently Historical small scale mining only, e.g. at Gt Barrier and Kawau Islands, Northland, Nelson Waikato North Head and Taharoa None

Otago region Northern Westland Northwest Nelson Marlborough Hauraki-Coromandel Taupo Volcanic Zone, central North Island Eastern Northland

5 other deposit types

3,180 1,585 26,990

West Coast, coastal flats and river and terrace gravels Otago River gravels, terraces and older quartz gravels Marlborough and Northwest Nelson Northwest Nelson, Westland, Hauraki, Northland, Fiordland As for epithermal gold Eastern Northland and Coromandel Northwest Nelson Central Northland East Cape, Fiordland Nelson, Southland West coast of North Island between Wanganui and Kaipara Harbour Northwest Nelson Westland Fiordland Northwest Nelson, Southland West coast, South Island

Silver Copper

Epithermal 5 deposit types

Iron Molybdenum Platinum Titanium

Shoreline sands Porphyry

26,000 33,720

Magmatic Shoreline sands

7,100 2,250

None Pilot scale only

Total

139,295

Sources: Christie and Brathwaite 1999. Mining Journal, January 2008 for current metal prices

The data above relates to on-shore resources only. Exploration is being carried out for gold and ironsand off the west coast of NZ, and for precious and base metals on the seabed to the northeast of the North Island. The potential value of these resources is additional to values indicated above. Onshore, exploration is concentrated on precious metals, coal and ironsand. A company programme using sophisticated airborne geophysical methods has redefined the geology of Otago. The Regional Council is contributing $1 million to the cost of the survey because of its value as an economic development tool and for managing resources, water particularly. Central government declined to contribute. Regional development agencies in Northland and the Waikato are carrying out research into the value of their mineral potential.

Natural resource potential of New Zealand. March 2008

Metallic minerals excluding gold Figure 9

Natural resource potential of New Zealand. March 2008

Gold mines and prospective areas Figure 10

10

Natural resource potential of New Zealand. March 2008

Aggregate and industrial minerals

Aggregates in New Zealand are made mainly from greywacke rocks that underlie much of both islands. These are quarried, or extracted from riverbeds and alluvial terraces where natural transport processes have upgraded their quality through the breakdown of weaker material. Volcanic rocks (andesite and basalt) are used in the North Island, mainly around Auckland and Taranaki, while various other rock types are used in the south of the South Island where greywacke is not available.

Industrial minerals Figure 11

11

Natural resource potential of New Zealand. March 2008 The demand for aggregate is tied strongly to economic and population growth, and as urban centres grow, quarries within, and on the outskirts of these centres find that continuing operation becomes increasingly difficult due to the opposition from a growing local population. This problem is particularly severe in Auckland where aggregate is being transported over greater distances as quarries within the urban limit are closed. Between 2002 and 2006 Crown Minerals data shows the average selling price of aggregate in the Auckland region increased by 40%, which has a significant effect on the costs of building and maintaining infrastructure, roads in particular3. Just 30 km of road transport can double the delivered cost of aggregate, and these costs are passed on to local residents via rates and taxes. Between 2000 and 2006 the production of aggregate throughout NZ has increased by nearly 30% to 38 million tonnes. Maintaining these supplies from sites close to their markets reduces costs and the effects of heavy traffic on roads, other road users, and those living near transport routes. It would also reduce CO2 emissions and reduce household costs through local authority rates. Among non-metallic resources, industrial minerals have potential for producing new, high value products. Northland china clay and Canterbury bentonite are examples of how niche markets for high value, unique minerals can be developed successfully, and there is potential to repeat these.

Coal
N w Z a n coal resources have been e el d a s investigated in detail by a Government funded survey and more information is available on them than for the other resources4. Coal production in the North Island is dominantly for use by New Zealand Steel at Glenbrook for steelmaking, for electricity generation and for industrial use. Most South Island production is higher rank bituminous coal that is exported. Over the last 10 years coal exports have doubled to 2.7 million tonnes in 2006, and have a value of about $300 million per year.
Million tonnes
3.00 2.50

Coal Exports

2.00

1.50

1 .00

0.50

1998 1 999 2000 2001 2002 2003 2004 2005 2006

New Zealand has large resources of lignite a low rank coal - in Otago and Southland. These amount to more than 7,000 million tn e a daeN wZ a n l g s c ne t n l n ryrs uc . o n s n r e e l d a e t o v ni a e eg e o re a s r o Table 3: Summary of the in-ground coal resources of New Zealand
Coal region Northland Waikato Taranaki Total North Island Nelson West Coast Canterbury Otago Southland Sub-bituminous Bituminous, subbituminous and lignite Lignite Lignite and sub-bituminous Lignite and sub-bituminous Coal Rank Sub-bituminous Sub-bituminous Sub-bituminous In-ground resource (million tonnes) 3 2,100 380 2,483 2 980 4 2,700 9,400

Figure 12

Recoverable resource (million tonnes) 700 170 870 340 2 1,220 6,300

Total South Island 13,086 7,842 Note: Only the lignite tonnages are likely to meet current standards for defining recoverable resources.
3

Bo n M 2 0 :N wZ a n Mn rl d s y rw , , 0 7 e e l d i a i u t a national perspective. Presentation to combined IOQ and AQAA a s e n r conference, Wellington 4 Barry JM, Duff, SW, MacFarlan DAB 1988: Coal Resources of New Zealand Energy and Resources Division, Ministry of Commerce, Resource Information Report 16.

12

Natural resource potential of New Zealand. March 2008

Operating coal mines and coalfields Figure 13

13

Natural resource potential of New Zealand. March 2008

Development potential
New Zealand has well defined potential for the discovery and development of oil and gas, metals, industrial minerals and coal. The sector could be much more productive than it is at present delivering improved export performance, more secure energy supplies at internationally competitive prices, and more efficiently supporting other industry sectors and the development of infrastructure.

Oil and gas

At present natural gas accounts for more than 20% o N w Z a n pi aye eg supply, and the f e e l d r r n ry a s m potential exists to increase that with further exploration. The effect of terli l s a T i ie o N e p r i a i i t no tep tnil a eo N h e te m l u ol l n Zs xot s n n c i fh oe t v l f Zs av y l fd i s d ao a u undiscovered oil resources. Dairy exports have been growing rapidly, and in December 2007 for the first time topped $1 billion for the month and were 77 per cent higher than in December 2006. Oil exports are growing too, and with production from the Tui field, oil exports were $254 million, 10 times their level a year earlier and enough to offset one-third of the month's record oil imports. The export value from just one small oilfield is equivalent to a quarter of the value of the entire dairy industry.

Coal
Lignite feasibility investigations are under way in Otago and Southland. These resources are New Z a n l g s e eg rs uc .The energy content of the recoverable lignite is estimated at 74,000 PJ, e l d a e t n ry e o re a s r equivalent to 20 times the energy content of the Maui gas field before it was developed, and about 35 times natural gas reserves. The lignite resources have the potential to form the basis of a large scale petrochemical industry that could produce liquid and gas fuels, and industrial chemicals such as methanol and urea. Coal seam gas is methane gas that can be extracted via drillholes from coal that is in-situ. Gas production methods are being investigated internationally and in New Zealand in the Waikato, Otago and Southland regions particularly. Exploration spending NZ and Global Coal exports The value of New Z a n ca ep r el d a s o l xot h v s ae 45.0 12.0 increased dramatically in recent 40.0 years, and now exceed $300 million 10.0 per year. Export production is 35.0 mainly from West Coast, South Island coalfields for steel making in 30.0 8.0 Asia and the Pacific.
NZ spending ($million)

Metals
Exploration activity has increased word-wide as a result of the rising mineral prices due to demand outstripping supply, but in New Zealand the rate of expenditure has declined in the year to March 2007, despite continuing increases internationally. The Fraser Institute , an independent Canadian research and educational organisation each year surveys several hundred resource companies that are active throughout the world. It then ranks 68 jurisdictions
5 5

25.0 6.0 20.0 15.0 10.0 2.0 5.0 0.0

1999 2000 2001 2002 2003 2004 2005 2006 2007

4.0

0.0
2008

NZ

Global

Data sources: Crown Minerals, Metals Economics Group

Figure 14

www.fraserinstitute.org

14

Global spending ($US billion)

Natural resource potential of New Zealand. March 2008 (countries, states and provinces) using a policy attractiveness index. Mining is managed at the state or provincial level in countries with a federal system (Canada, Australia and the US). In the 2007/08 survey Quebec, Nevada and Finland rank at 1, 2 and 3. Ecuador, Zimbabwe and Honduras take the bottom 3 spaces. New Zealand ranks at No 44, behind all 6 Australian states and 10 Canadian provinces that are included in the survey. Poor policy and a failure to keep up with other countries in such fields and new digital data are the most obvious explanations for this dismal result. Maintaining a high level of exploration is essential for maintaining and expanding the volume and value of the minerals we produce. A 2002 economic study of the NZ minerals industry by the NZ Institute of Economic Research, built on the 1 9 su yo N mn rl oe t l 9 9 td f Zs i a p tni referred to above1. NZIER modelled the economic effects of mining e a industry growth on the NZ economy and made the following key findings: Within 10 years NZ has the mineral resource potential to sustain a doubling of its value to the NZ economy Employment potential of +25,000 jobs Overall household incomes increase by 1.7% Overall exports increase by 4% Longer term GDP growth of 2.9% possible Potential for overall export growth of 7% Employment potential of 35,000 jobs Households would be 2.3% better off High quality china clay - Matauri Bay In 2006 sales revenues for Imerys Tableware New Zealand Ltd were NZ$13,000,000. Exports to 23 countries account for 99% of this revenue. Current operating expenses are in excess of $500,000 per month and most of this is spent in Northland. Although the operation has access to three distinct deposits only two are worked at present. The total area occupied by the two active quarries (Matauri Bay and Mahimahi), including waste disposal and buffer areas is approx 178 hectares. This gives gross revenue per hectare per year of about $73,000.

Both scenarios can be achieved without access to National Parks and other sensitive areas that are now closed to mining.

Non-metallic minerals

New Zealand is producing industrial minerals with The Matauri Bay operation supports 35 a current value of about $40 million per year. Full Time Equivalent staff in Northland, Minerals include: amorphous silica, bentonite, clay pu a oh r i tec mp n A cl d l n te 5 n h o a y uk n s s a for ceramics and brick making, diatomite, laboratory and sales office. dolomite, perlite, pumice, serpentine, silica sand and zeolite. These have a wide range of uses by industry in New Zealand and are exported. Extensive research and development work is needed to upgrade natural materials and to find markets for the resulting products. The china clay operation at Matauri Bay in Northland is the only industrial mineral operation that depends entirely on exports. Other NZ industrial minerals including bentonite and lime are exported.

15

Natural resource potential of New Zealand. March 2008

Changes needed to realise potential

Government administration and management
Until the early 1980s minerals and petroleum were administered by a stand-alone government department (the Mines Department) with Cabinet representation. Since then the group administering minerals has been progressively reduced in standing to a division within the Ministry of Energy, which was then abolished and incorporated into the Ministry of Commerce (re-named the Ministry of Economic Development). Minerals and petroleum are now administered by Crown Minerals, a small group within the Ministry of Economic Development. The Ministry has eight branches, one of which is Business Services Branch. Crown Minerals is one of seven groups within the Business Services Branch. T e Ba c other h rn h s responsibilities include the companies office and radio spectrum licensing. The management of Crown owned resources is structured within the government administration as a service to the private sector, rather than being managed as immensely valuable assets that are owned by the public. Public sector restructuring has resulted in fragmented management of resources. The functions of the main agencies are: Crown Minerals, Ministry of Economic Development. Grants permits, collects information, publishes statistics, promotes investment, collects royalties Regional and district councils Manage mineral resources and the environmental effects of activities under the Resource Management Act Each region and district develops its own policies and rules The Department of Conservation An estimated 70% of the mineral prospective land in NZ is owned by the Crown DoC controls access to minerals under most Crown Land (more than 8 million hectares - about 30% o N l dae f Zsa ra) n Conservation is defined as preservation and protection DoC has no incentive to facilitate exploration or development The Department of Land Information Administers an area of about 3 million hectares of Crown land under Pastoral Leases and Forest Licences The Department of Labour Has primary responsibility for worker safety GNS Science Has research functions of the NZ Geological Survey No agency has the authority t tk tel di m k gm r o N wZ a n rs uc p tni, in spite of o a e h e n a i oe f e e l d e o re oe t l a n a s a these resources being owned almost entirely by the public.

Mineral ownership and access

All petroleum, gold and silver in its natural state throughout New Zealand is owned by the Crown, whether it is located on Crown land or privately owned land. Other minerals (including coal) may be owned by the Crown, the owner of the land, some other person, or may be of unknown ownership. There is no reliable register of mineral ownership, and it must be determined by searching individual titles back to the original (usually 19th century) Crown grant - a time consuming, costly process. Other jurisdictions (notably Australian States and Canadian provinces) that inherited this cumbersome, uncertain system from English law have moved progressively to a system of public ownership for high value minerals to facilitate exploration.

16

Natural resource potential of New Zealand. March 2008 Where minerals are owned by the Crown a permit is required that is granted by the Minister of Energy via Crown Minerals. Access to Crown Forest Licence land While the ownership for gold, silver and petroleum is clear, the situation for other minerals (platinum Crown Forest Licences cover an area of more than group metals on private land for example) is not. 480,000 hectares of Crown land, mainly in the North Complications in determining rights are impeding Island. Much of it is prospective for minerals. The exploration for these minerals. licences were intended to privatise timber cutting rights but have, in effect, transferred rights to the The complex mineral ownership regime is minerals too. The following is required to carry out compounded by an access regime introduced in an exploration programme on these areas of Crown the Crown Minerals Act 1991 that requires a land: negotiated access agreement with each land owner and occupier. An arbitration process 1. An exploration permit granted by Crown o eae fr erl m w eea re e t a b p rts o p t e o u h r ge m n c n e t Minerals reached, but not for other minerals. These access 2. An access arrangement with Land Information agreements are not tied to permits to explore and NZ mine, so they can run on after a permit has 3. An access arrangement with the Licence holder expired. A separate system of private access (usually an overseas forestry corporation) rights to Crown owned minerals is developing because of these deficiencies in the Crown 4. An access arrangement with the forest operator Minerals Act. Private agreements that are not (which is usually a different company). registered on land titles can prevent access to Each imposes fees and conditions separately on land by a holder of a minerals permit granted the explorer, and may seek a return from any under the Act. subsequent mining operation. If an access arrangement cannot be agreed there is no right of An overhaul of the mineral ownership and access redress. provisions of the Crown Minerals Act is required.

Oil and gas

The Government has announced its intention to introduce an Emissions Trading Scheme progressively covering all gases and major emitters:

These consents are needed to enter the land for exploration. Resource consents may be required in addition for exploration activities.

l tcyw u b Ee r i o l ecovered from 1 January 2010 c it d Blsb fr P r m n a dl A ii eoe al e t n egislation is expected to be passed during 2008 l i a h G v rm n h sa oi rd c dl iai t g eefc t i e eg p ly tepiayg a T e o en e t a l n o u e e s t n o i f to t n ry oc,h r r o l s t glo v e s i m of which is to try and achieve 90% renewable energy by 2025 h Bl T e iincludes a 10 year moratorium on new thermal plants with some exceptions: l security of supply n na e o d p ns o b s -l l t a a replacement of retired plant The strategy will increase the costs of gas production operations in New Zealand compared with other countries and may act as a disincentive for future investment in the sector. Two studies in 2008 by Infometrics6 and Castalia7 predict a doubling of electricity prices and an increase in petrol prices by 50%, accompanied by rising greenhouse gas emissions (Infometrics), and ongoing amendments to the energy strategy and continuing uncertainty (Castalia), contrasting with the cautious approach being taken in Australia, despite its commitment to the Kyoto Protocol. The key elements of the changes were not included in the draft energy strategy, and are likely to discourage investment in oil and gas exploration immediately because of the added uncertainty now faced by potential investors.
6

Carbon Mitigation Scenarios. Report prepared for NZ Business Roundtable and Petroleum Exploration and Production Assoc of NZ. 5 February 2008 7 Climate Change (Emissions Trading and Renewable Preference Bill. Castalia 30 January 2008.

17

Natural resource potential of New Zealand. March 2008

Coal
Coal (particularly Otago and Southland lignite) is affected by the costs and uncertainties of private coal ownership, the Crown Minerals Act access regime and by the fragmented administration of mineral resources in New Zealand. In addition, the proposed new energy policies and the emissions trading scheme will affect coal as a domestic energy source. NZ Gold production and exploration spending 1977 2006 (5-yearly intervals)
180
Go ld P ro duc t io n

2.0 1.8
5-yearly gold output (Moz)

High value minerals

I te 1 7 s N w Z a n n h 90 e el d a s resources of hard rock gold were virtually zero and the conventional view was that a resumption of mining was unlikely. A surge of exploration investment in the 1980s was followed by rapid growth in gold output as new discoveries were developed. Maintaining a high level of exploration investment is essential for continued or expanded mineral production. New Zealand needs an internationally competitive regime for mineral exploration if it is to attract the necessary investment. Methods that have been successful overseas include:
Exploration spending ($M)

160 140 120 100 80

E xplo ra t io n spending

1.6 1.4 1.2 1.0 0.8

60 40 20 0
1977-81 1 982-86 1 987-91 1 992-96 1 997-01 2002-06

0.6 0.4 0.2 0.0

Sources: 1977-1994 Mines statements, Reports of Ministry of Energy. Estimates 1995-1999 as no data collected. 2000-2006, Crown Minerals Exploration spending is March 2006 dollars deflated using CPI

Figure 15

Acquiring and publishing new geoscientific data Compiling existing data to make it more accessible Streamlining consents for low impact exploration Better structured mineral ownership and access regimes Taxation incentives for individual investors in exploration Matukuturua Stonefields Basalt rock from the Auckland volcanic field that underlies much of the Auckland urban area has been the main source of supply since European settlers arrive in the 19th century. Conserving aggregate resources for future use has proved to be difficult, as this example shows. At Matukuturua south of Auckland, land containing a large basalt resource was bought by a quarry company and zoned for quarrying purposes in the District Scheme in the 1970s. Although the underlying quarry zone remains, the current District Plan established under the RMA designates the area for public open space for heritage protection and passive recreation (Manukau City Council 2006), precluding the development of the aggregate resources. Ironically, the present heritage value of the land at Matukuturua is the result of it having been set aside in private ownership for future quarry use. A total of 630 million cubic metres of basalt remain available within the Auckland urban area, but production from these resources has now virtually ceased.

Aggregate
The supply of aggregate, particularly to growing regions such as Auckland, has been long recognised as a significant issue for the maintenance of infrastructure and the growth of the Auckland region. In spite of this, comprehensive data on aggregate supply and demand is not available. Policies that apply to the management of aggregate resources vary widely throughout NZ due to differences in regional and d tc c u c p li a d i r t o n i oc s n si l s ie plans. Three local authorities in the Waikato region (Thames-Coromandel, Franklin and Waikato) have sought to impose rules that would make mining or quarrying a prohibited activity over wide areas of these districts. Existing quarries in areas of population

18

Natural resource potential of New Zealand. March 2008 growth (where demand is strongest) have been unsuccessful in dealing with the effects of urban expansion, and a number have been forced to close, resulting in cost increases and pressure on local authority rates. The difficulties that companies face in seeking to protect resources for future development are highlighted by the experience of Winstone Aggregates at Matukuturua in Manukau City.8, 9 (See box).

Exploration initiatives
During the 1990s slowing exploration activity in Australia led two states, Victoria and South Australia to undertake initiatives to promote exploration investment by the private sector. The Victoria Initiative for Minerals and Petroleum, and the South Australian Exploration Initiative led to rapid increases in exploration spending. The initiatives consisted of field investigations that produced new information (mainly from airborne geophysical surveys), compiling existing information to make it much more accessible, and reviewing policies that might be unduly impeding mineral exploration. Geoscience Australia investigated the effects of these programmes in Australia and overseas, and found that each dollar invested in new data led to $5 of additional exploration spending by the private sector, and the discovery of in-ground resources worth $100 150. They also estimate that each dollar spent on such programmes in Australia earns $360 in exports, $15 in the export of services and $19 in new tax and royalty income. Ii te o ti t eh v n wb e c re o tne eys t i A srl.N wZ a n w r i ti f l n i i s fh y a e o e n ar d u i v r t e n u t i e e l d okn h id t v a s p i a aa a s se, while useful, has been small scale and uncoordinated compared to the practice in the best of the Australian states. S uhA srl po rmme is now the most advanced. The second generation programme (PACE o t u t i s rga aa Programme for ACcelerated Exploration)10 began in 2004. Numerous new mineral discoveries have been made including the world class Carapateena copper-gold deposit, and the programme now extends beyond geoscience data, to a wide ranging programme of 8 themes that include developing protocols for aboriginal communities to benefit from resource development activities. While the upsurge in exploration investment has been exceptional, increasing from about 2% of the Australian total in 1995, to $150 million and 14% of the Australian total in 2006, the cost has been quite modest. The current 5 year PACE programme has a budget of $22.5 million, with $3.1 million budgeted for the current year. A total of 13 resource related projects with a capital investment of $24 billion have been proposed in South Australia, and 10 more are under investigation.

Johnson JD, Happy AJ, Compton RG 1998. The dawn of a new stone age for Auckland. Roading Geotechnics 1998 Conference. Institute of Professional Engineers, Wellington. Barker, R.G., Christie, A.B., Robson, R.N., Graham, I.J., 2006. Regional policies and minerals resource potential of New Zealand, The Institute of Geological and Nuclear Sciences (GNS Science) science report 2006/25 70p.

10

www.pir.sa.gov.au/minerals

19