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SELECT COMMITTEE ON AGRICULTURAL AND RELATED INDUSTRIES
24/03/2009
Food production in Australia

CHAIR —I welcome the representative of Minemakers. Would you like to make an opening statement?

Mr Bergin —Minemakers Ltd is the owner of the Wonarah phosphate deposit, which is Australia’s largest JORC-compliant phosphate resource, at about 461 million tonnes at about 18.8 per cent P2O5.

CHAIR —It is three times Mount Isa, isn’t it?

Mr Bergin —Are you talking about Phosphate Hill?

CHAIR —Yes.

Mr Bergin —Their last published resource was something of the order of 120 million, so yes.

CHAIR —So there you go! Is that your opening statement?

Mr Bergin —I could go on and talk about the advantages—

CHAIR —It is 18 per cent and I think Phosphate Hill is a bit higher, isn’t it? It is 20-something per cent.

Mr Bergin —I believe at Phosphate Hill they are feeding 22 per cent, 23 per cent to the—

CHAIR —I have done a little bit of homework.

Mr Bergin —Yes.

CHAIR —We would welcome Minemakers’ mine into production because, if there is one thing that is patently obvious in the phosphate world, it is that, with 85 per cent of the world’s resource controlled by five entities at the present time, we could do with some competition. That has been ably demonstrated in recent days in Australia. Could you take us through what are the logistical and financial issues that you face to get your mine up and running and provide some real competition in the phosphate market: things like the transport, the railway line et cetera.

Mr Bergin —Probably Australia as a whole would have been better placed to provide competition in the phosphate marketplace had there been better infrastructure in place. Australia’s phosphate resources lie within the Georgina Basin, which lies between Mount Isa and Tennant Creek, roughly. Our deposit at Wonarah is on the western side of that in what we think is a topographical high.

Incitec Pivot at Phosphate Hill are the only company currently in production and they are a fully integrated business: they mine rock, they turn it into fertiliser and they export, largely down the east coast of Australia. They have access to the Mount Isa-Townsville railway, which is a narrow gauge track probably at capacity, so any other would-be producer in that Mount Isa part of the Georgina Basin is faced with some logistical hurdles to overcome, including building roads, seeking an upgrade of the Townsville railway or finding an alternative way of getting their product to port.

Minemakers for its part is fortunate in that its deposit happens to lie right beside the Barkly Highway and about 300 road kilometres to Tennant Creek. Our project will produce rock. We will truck it to Tennant Creek, put it on a train and rail it up to Darwin for export through Port Darwin. That means that the trucking and logistics part of our operation will account for about two-thirds of our operating costs. At this stage we have estimated our operating costs at about A$150 per tonne, of which about $100 per tonne, in round figures, is the logistics part.

Had there been an east-west railway from Mount Isa to Tennant Creek, we think the cost of logistics could be reduced by between $30 to $50 per tonne, which is a significant saving. Australia is unlikely ever to be as cost competitive as, say, Morocco or some of the other producers, but we could be a lot more competitive if the infrastructure was in place that would allow us to lower our costs. That would provide some real competition in the marketplace.

CHAIR —Strategically, looking at a 50-year or 80-year snapshot of Australia and the development of the north, not only in mining but tourism et cetera, and downstream value-adding to some of the gas resources et cetera, it would be a strategic decision to actually bring an east-west line and hook it up to the north-south line in the longer term. Is it 240 kilometres that the railway line would take to get to your place?

Mr Bergin —Indeed. It is 240 kilometres in a straight line from Wonarah to—

CHAIR —Then it is about another 500 to Mount Isa, is it?

Mr Bergin —As a straight line, I am not sure. Driving it is about 360, so it is probably of the order of 300.

CHAIR —So it is well on the way to the link-up.

Mr Bergin —Yes.

CHAIR —Have you made any application to Infrastructure Australia to put a proposition to them on the rail?

Mr Bergin —We did. We made a submission to Infrastructure Australia on both the upgrade of the Port of Darwin, because there are some capacity limitations in Darwin, and also on the construction of the railway between Mount Isa and Tennant Creek. Since we made that submission, we have been approached by the Australian Transport and Energy Corridor—ATEC—to conduct a feasibility study on a rail link between Wonarah and Tennant Creek.

Senator NASH —Who is funding that?

Mr Bergin —We and ATEC are jointly funding that feasibility study.

Senator NASH —What is the cost of that going to be?

Mr Bergin —At this stage we are talking about a few tens of thousands of dollars just to conduct the first stage. It is divided into two stages. There is a desktop study, which is what we are going through at the present. If that proves or suggests that the proposition is positive, then we will move to a more detailed feasibility study, which will start to cost of the order of hundreds of thousands of dollars.

CHAIR —We heard in a different context in the last couple of days on the infrastructure bids across Australia, which would not be based on some sort of quota to the states but, rather, on the merit of the project. Have you had any reaction on the merit side of your project?

Mr Bergin —In terms of our proposal to Infrastructure Australia, we understand that the upgrade to the Port of Darwin is on the priority list. The rail between Mount Isa and Tennant Creek is not.

CHAIR —I welcome a Queensland senator here, Senator Macdonald. We are just talking about the phosphate mine.

Senator NASH —Sorry, Mr Bergin. Have you got a rough ballpark figure for the construction of the rail line? I know you are doing a feasibility study now, but is there a rough figure?

Mr Bergin —The rule of thumb, and it is very generalised, is something like $1.5 million to $2 million per kilometre of rail. That is very much dependent upon the terrain that the railway has to cross.

CHAIR —So it would be something like $400 million?

Mr Bergin —It would be of that sort of order. The section between Wonarah and Tennant Creek is relatively flat and does not cross any significant stretches of black soil plain, so therefore its construction should be relatively simple, whereas the section from Wonarah onwards to Mount Isa would be more than—

CHAIR —Would it be fair to say just roughly that to link Mount Isa up to the north-south line would be $1 billion?

Mr Bergin —I would think it would be of that order of magnitude, yes.

CHAIR —That is quite a few pink batts, you realise.

Mr Bergin —Yes, it is.

Senator NASH —It is a lot of boom gates.

Senator MILNE —From what I can see from your submission, at the moment it is only your company that would particularly benefit from this, and what you are then asking for is effectively a half a billion or a $1 billion subsidy to your operations, given that there is a road link there already. Why wouldn’t other companies in this business see this as a major subsidy from the federal government to your operation?

Mr Bergin —Our submission to Infrastructure Australia was with regard to the Mount Isa to Tennant Creek link, which we would see as part of a major national infrastructure project. That would provide benefit to many other potential producers and existing producers in that catchment area. Our feasibility study is specifically with regard to the link from Wonarah to Tennant Creek. We are co-funding the feasibility study, and ATEC have indicated that they would go out and build the railway.

We would have the opportunity to participate in ownership of that railway if we wished, so we are certainly not proposing that the government give us half a billion dollars for our project. We were suggesting that the federal government might like to contribute to construction of the Mount Isa to Tennant Creek link, which would benefit many parties, not just us.

CHAIR —It would give the north-south line a bit to do too.

Mr Bergin —It would.

Senator O’BRIEN —When you say many parties would benefit, can you give some idea of the sort of traffic that you can expect the Tennant Creek to Mount Isa line to carry?

Mr Bergin —I can speculate on what other phosphate producers, for example, might produce. We would certainly consider an increase. Our targeted production is about three million tonnes per annum for our initial operation. If the market would stand greater production, we would probably be limited by the Barkly Highway, in which case we would need a railway. But with a railway there, we could increase our production to, let’s say, five million tonnes per annum.

CHAIR —What does Mount Isa do? They are about one million, are they?

Mr Bergin —Phosphate Hill? I am not sure of their production. Other phosphate producers—you have Phosphate Australia, who are on the border of the Northern Territory and Queensland—would still need to build a road link, or possibly a rail spur, of about 100 kilometres. But with the rail catchment there, we are going to road 300-odd kilometres, so 100 kilometres by road is not really a big deal. Then you have Legend International in Queensland, north of Mount Isa. They are talking about production of five million tonnes per annum. At the moment they would have to take that out via Townsville. The east-west link would provide them with an alternative and, particularly if it is built as a standard gauge, would enable higher axle loads, higher speeds and greater reliability.

Senator O’BRIEN —So essentially it would be a bulk minerals carriage line?

Mr Bergin —Bulk minerals, yes. If you look at a map of that part of Australia, you will see there are a number of deposits. I cannot name them all, but there are numbers of deposits which lack infrastructure as the key component of the project. They just sit there waiting for infrastructure to come along.

Senator O’BRIEN —So would you foresee these mineral projects making co-contributions to the project? Is it valuable enough for them to do that?

Mr Bergin —I am sure that most of those parties would consider that as an option. Speaking for Minemakers, we would certainly look at that as an option.

Senator O’BRIEN —In terms of the impact on the market of your company’s mine coming onstream, would you expect that that would have a downward pressure on prices? How elastic are the prices, do you think, or would world prices dictate what was charged here in Australia?

Mr Bergin —As you are probably aware, the Moroccans control 50 per cent of the traded rock phosphate in the world, so they are the price setters. In terms of forecast supply and demand, the global long-term trend is about two to 2.5 per cent annual growth in demand, which is about the equivalent of a Wonarah every year. If you take all the known projects and stack them up in the time line in which they are currently forecast, there would be a surplus of supply over demand in about 2011. We believe that the reality is that many of those projects, whilst they will come to fruition, will not make it in the time frame that they are anticipating, and therefore the supply curve is going to flatten and, in our estimation, is unlikely to cross the demand curve. Therefore, we think the market is going to stay in deficit.

Senator O’BRIEN —So prices will go up?

Mr Bergin —Prices will go up or will be determined by whatever the Moroccans want to charge.

Senator O’BRIEN —They will want the price to go up.

Mr Bergin —I am sure they will. They have, I suppose, shown their OPEC-like position over the past year or so, in which they went from about US$50 or US$70 a tonne to US$400, US$450.

Senator IAN MACDONALD —My apologies to you and to my colleagues for being late. I understand someone is doing a greater analysis, but could it possibly be cost effective? Can you charge enough for rail freight to give a return on your investment as a government or a private contractor, a private operator?

Mr Bergin —ATEC is a private company, so they are convinced—and they know a lot more about railways than I do—that it is possible to make money out of constructing and operating a railway. Whether it is economic for a link between Tennant Creek and Wonarah alone, I do not know. I would suspect not. It might depend on how it was funded. A link between Mount Isa and Tennant Creek with far greater volumes would be economic, I believe.

Senator IAN MACDONALD —I am not sure of your knowledge of the Mount Isa to Townsville railway line, but you would probably be aware that it is slow, unreliable, weak, light, inefficient, simply because it has not been maintained or upgraded over the years. You would be aware of that?

Mr Bergin —I have been told that.

Senator IAN MACDONALD —You perhaps also know that you cannot get a cattle train out of the north-west of Queensland at the moment—the coast—because Queensland Rail only takes minerals. They pay better, apparently. Have you been aware of that?

Mr Bergin —No, I was not aware of that.

Senator IAN MACDONALD —This inquiry is into food, of course, and one of the constraints for the pastoral industry in north-west Queensland, and Northern Territory out where you are operating, is the inability to get rail transport to the coast.

CHAIR —Could I just intervene there?

Senator IAN MACDONALD —You have done all this?

CHAIR —No. This little bit of this inquiry is actually for fertiliser. We are going to food.

Senator IAN MACDONALD —I see. I am not late then! Nevertheless, fertiliser and food are related.

CHAIR —Yes.

Senator IAN MACDONALD —And, for what it is worth, there certainly would be a lot of north-west Queensland enterprises, both mineral and foodwise, that would be very keen to look at a link to Darwin rather than going to Townsville.

CHAIR —It would be a great strategic investment, yes.

Senator NASH —Obviously, one of the interesting things for this committee is potential competition, but we have taken evidence in the past that pricing is, of course, linked to world parity. Can you explain to the committee how introducing competition, as you see it from your company, would lead to lower prices for the consumers in the end, given that we are told that it is all about world parity pricing?

Mr Bergin —I have not heard that about world parity pricing. I know that everyone has been quite happy to follow the Moroccans.

Senator NASH —Yes, that is probably a better way of putting it.

CHAIR —Except the poor buggers at Nauru. Up until recent times, they were only getting $50 a tonne.

Senator NASH —We certainly have taken evidence from others that it is circumstances beyond other producers’ control and it is all to do with world price.

Mr Bergin —That is certainly the case. Introducing our product and rock phosphate from the other Georgina Basin producers would open up a vast phosphate resource for Australia and would provide alternative sources for buyers to purchase their rock from. Some people are certainly unhappy with the behaviour of the Moroccans over the past year or so and, although the price has come back somewhat to US$250 to US$290 a tonne, as a matter of principle people are looking for alternative sources of rock just to try and break the Moroccan monopoly on pricing.

CHAIR —We are looking at whether there is monopoly behaviour and a global cartel sort of modus operandi, and it is actually true that there is cartel behaviour, when one nation can set the market and 85 per cent of the resource is controlled by five entities. We took evidence of pretty outrageous behaviour in one particular market. I have to say that the global cartel for MAP, which is the downstream work, was busted by the Russians with their Black Sea price, from what I can see. They were asked to cut production and they said, ‘We’re going to increase production and lower the price.’ What we are on about is trying to make fertiliser available for farmers so that they can afford to grow the crops to feed the world, but from your experience and your research into the market, it would be fair to say, wouldn’t it, that the rock phosphate market has been pretty contrived?

Mr Bergin —It is certainly dominated by the Moroccans—and, I guess, the Jordanians as well. They certainly control the price that most people have to pay for their rock. There are a number of smaller producers that apparently are supplying at lower prices, but they may also be providing a lower quality of rock.

Senator IAN MACDONALD —Beyond what price is your operation not economic? Is that commercial-in-confidence?

Mr Bergin —No. We have made it very public that our estimated cost of production is about A$150 a tonne—so, in round figures, US$100 a tonne. Any price below that and we would not be able to cover our operating costs. You would therefore gather the significance of the rail connection, in that if we could wipe A$30 to A$50 a tonne off the cost of our logistics, that would put us back down around US$80 a tonne.

CHAIR —So in looking at this as a sovereign issue, which is what China is inclined to do with their supplies, there would actually be some sovereign value in investment in that infrastructure for Australia’s long-term better interests.

Mr Bergin —Indeed.

Senator O’BRIEN —You are saying the government should take a share?

CHAIR —I am saying that, if it is good enough to build football stadiums for some sort of public good, then it ought to be good enough to build a railway line in the national interest. That is what I am saying. Is that all right?

Senator O’BRIEN —How does the government control it? I thought you were saying the government should take an interest.

CHAIR —I am very much of the view that we have to build some infrastructure up there. Further questions?

Senator FARRELL —Mr Bergin, I wonder if you could tell us a bit more about some of the constraints at the Darwin port.

Mr Bergin —Darwin port at present has a capacity for bulk minerals of about six million tonnes per annum.

Senator FARRELL —We are talking East Arm here, are we?

Mr Bergin —East Arm, yes. Its capacity is six million tonnes per annum of which, we now understand, about three to 3½ million tonnes is currently committed or expected to be used over the next year or so. At the time that this letter was written, we did understand that there was at least one other potential exporter who had capacity allocated. We now understand that there is no contractual arrangement for that quantity of material and that that particular operator is not operating but struggling with finance because of the GFC and unlikely to take up any capacity in the port in the short term. That means that we believe that there is now three million tonnes of capacity available at the port.

However, having said that, in order for the port to handle our rock phosphate, areas need to be filled in, areas need to be provided for a storage shed, and a link from the storage shed onto the ship loader needs to be provided. We had discussions with the port last week and they have indicated that that might take between 12 and 18 months to achieve. Nonetheless, they have given us a commitment that, if we want to export rock through the port, they will make sure that we are able to do so.

Senator FARRELL —Does that mean that the problem is now fixed?

Mr Bergin —I do not know that it is fixed. They have a master plan which I believe is due to go to their minister sometime this month. Assuming that that is approved, then there is a blueprint for the development of the port over the coming years. I understand that some money has already been allocated for that expansion but it will require further funds to complete.

Senator FARRELL —But you understand that some of the federal infrastructure money is going to go into that?

Mr Bergin —My understanding is that it would be on the priority list, yes.

CHAIR —The 50-year snapshot for the planet says that two-thirds of the world’s population are going to be our neighbours just up the hill there. I am very much of a view that an 80-year snapshot of Australia would have that railway line not only linking up from Mount Isa but also heading over to a deep sea port through the Kimberley there somewhere, to pick up all that potential development right across the north. That is where my view is. I will be pleased if you can assist us in that case by getting your bit up. Are there further questions? We are very grateful. I am well read on your project. We wish you well, and if there is any help we can give you, we would be delighted to be able to assist you. Thank you very much, Mr Bergin, for your assistance.

Mr Bergin —You are welcome, thank you very much.

[9.35 am]