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Transcript of doorstop interview: Parliament House, Canberra: 22 August 2012: Olympic Dam expansion decision



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THE HON MARTIN FERGUSON AM MP

Minister for Resources and Energy Minister for Tourism

TRANSCRIPT

DOORSTOP INTERVIEW, PARLIAMENT HOUSE 22 AUGUST 2012

E & OE

SUBJECTS: Olympic Dam expansion decision

FERGUSON: Although the decision has been made, for commercial reasons not to go ahead with the Olympic Dam expansion, all is not lost. The company has clearly indicated, from an Australian and South Australian government point of view, they could not have asked for anything more. All the regulatory approvals have been in place for over twelve months.

This is purely a commercial decision by the BHP Billiton board. I also welcome the decision of BHP Billiton to continue to work with the South Australian Government to actually make this project a reality. It is challenged by the size of the project, its capital intensive nature and the cost of capital. Copper prices are still attractive. Our responsibility to the South Australian Government, and I might say, BHP Billiton is to continue this work in a constructive way with a view to reducing the cost of capital related to the project and in doing so making it a reality. I must say I’m personally not surprised at the BHP Billiton decision given the size of the project, potentially the pit is as big as Adelaide CBD, and you’re talking about removing overburden for a period of about five years which means a huge capital outlay before you turn a quid. So I simply say there is disappointment to both the Australian and South Australian Governments, but as far as I’m concerned the project is still there to be grabbed. Our responsibility is to work with BHP Billiton to actually get this project in place in the future.

QUESTION: Mr Ferguson, the opposition is already citing the Carbon Tax and Mining Tax as contributing to BHP’s decision.

FERGUSON: Have a look at what BHP Billiton said; it’s very clear- both publically and privately in discussions with me: there’s nothing more that the South Australian and Australian Government’s could have done. This is a board decision, it is a commercial decision. It is not a regulatory decision. Everything BHP Billiton wanted; it was given to BHP Billiton by the two Governments over twelve months ago.

QUESTION: Mr Ferguson there is praise for the South Australian Government in their statement, but the praise for the Federal Government is kind of glaringly not there.

FERGUSON: I think I spend a bit more time with BHP Billiton than you do, and I know where their heads are at. I’ve had discussions with the chair of BHP Billiton, the latest was last week. As someone who has to follow the market and where each of the projects are up to, this was not committed capital investment. I always knew it was challenging. This is the second iteration that has lead to the BHP Billiton board saying no not at this time. Look at the drop in commodity prices. Look at the earnings of BHP Billiton. Olympic Dam was competing with all the BHP Billiton projects around the world in terms of potential investment funding. March last year BHP Billiton spent $12.5 billion in Australia in iron ore, thermal and coking coal. We did exceptionally well. This was always the project that was going to be hard to get because of the capital intensive nature. Change in economic circumstances,

given the cost of capital, and the global environment, has led to the BHP Billiton board appropriately being very cautious in terms of their willingness to commit to a project such as this at this point in time.

QUESTION: With these commodity prices are we likely to see more projects now being delayed from other companies.

FERGUSON: We’re pretty lucky, we’ve got an investment pipeline of about $270 billion and huge amount of capital investment underway in Australia at the moment. I think quietly, that investment pipeline is going to be put in place. The real issue is, given the global community at the moment, and the issue of commodity prices - look at thermal coal at the moment about $80 a tonne, iron ore down to about $115, I think coking coal’s at about $118 - our job is to actually deliver the existing investment. I think potential new investment is going to be challenging to a variety of boards for some time to come. But we’ve got $270 billion delivered capital investment. Just go and have a look at Barrow Island and the Gorgan project to see the huge benefit this is bringing to Australia in terms of jobs, both in construction and all the associated content opportunities: there’s maritime service, there’s aviation services, catering services, manufacturing services etc. My real challenge at the moment as the Resources Minister with companies such as BHP Billiton is to try, as we are, through Enterprise Migration Agreements and all the associated training programs to get the labour in place to build these projects. It is a huge challenge. We’re the envy of the world in terms of what we’ve got underway in Australia at the moment.

QUESTION: Minister are you completely ruling out that the Mining Tax and the Carbon Tax had any impact on this decision?

FERGUSON: Firstly, the Mining Tax only applies to three commodities; the PRRT for petroleum, the MRRT for coal and iron ore. In terms of this project there is always going to be the question of huge capital intensive nature of it and the cost of capital. It’s completely unrelated to the Carbon Tax and BHP Billiton says that in its media release and in discussions with me as late as today in terms of its decision on this project.

QUESTION: On the MRRT, BHP says it will have a credit of about $670 million against its Mining Tax liability, how does that effect….(inaudible).

FERGUSON: Look, I haven’t been through what else BHP Billiton may or may not have said today or in recent times, those issues have been attended to by the Treasurer and Treasury. All the forward projections in terms of the budget estimates are of a Treasury nature and I’ll wait and see where we end up over the next twelve months.

QUESTION: Is the project not lost, if so when can we see this project perhaps going ahead again, is it years away?

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FERGUSON: That’s for the BHP Billiton board to decide. Look, this is a commercial decision, purely a commercial decision; it is no way related to any regulatory process in Australia. They’ve indicated publically that they want to re-visit the project, and this is the third time it has been re-visited. The current proposal is far different in nature to the initial proposal from 2008. They’re now going to have a hard look at the capital intensive nature, how we get the cost of the project down, and so they should. They’ve got to look after the needs of shareholders, and our job, both mine and Tom Koutzitanis, the South Australian Minister, is to reaffirm we’re committed to the project and continue to work in the very constructive way that we have with BHP Billiton.

QUESTION: Is this a blow is for the South Australian economy?

FERGUSON: Look, it would have been lovely to get the project up. It would have been the icing on the cake for South Australia. But I give full credit to the South Australian Government over a long period, especially starting with Mike Rann and Kevin Foley and now Jay Wetherall. It’s a different economy to the nature of the economy when they were first elected. You know 2007 when we got elected you wouldn’t have thought about Mitsubishi not being in operation today. They have managed that. First the Government actually set out to diversify the economy; they reinvented the mining industry in South Australia through an endeavour to encourage exploration and development. It’s a very pro-mining state. Olympic Dam in its current form is a great project. We’ve got a whole diversification- they’ve chased export industry in terms of education, and they’ve got Defence over there in terms of manufacturing. I think South Australia is pretty well positioned, they’ll get through this. It would have been wonderful to get it; it would have been a terrific opportunity for the next ten to twenty years time just in terms of building this project. It’s not lost; we’ll continue to work to get it to be a great benefit to South Australia and potentially to the whole of Australia.

QUESTION: With BHP deciding commodity prices as a factor, and the Carbon Tax pushing up the cost of production, how can you say the Carbon Tax isn’t a factor?

FERGUSON: If you actually go and have a hard look at where copper prices are at the moment, yes Uranium prices are down because of Fukushima, but if you actually get the cost of this project down from the capital point of view, it still means the project is viable. Our job is to work with BHP to deliver the project. Boards have to have a look at this, you know, they are competing at a board level for different divisions to actually get investment funds. Olympic Dam has to compete with iron ore, coal, petroleum etc. It’s the board’s responsibility, as I said I’ve worked on this project both in opposition and in Government, it would have been terrific to land it, but I’m not giving up nor is the BHP Billiton board, and nor is the South Australian Government, it is there and it will be grabbed at a point in the future.

QUESTION: (Inaudible)

FERGUSON: Well they have to rework the nature of the project, besides, you know as I’ve said, on current proposals it is equivalent to an open pit about the size of Adelaide CBD. You’re reducing overburden for about five years, which is a huge outlay in terms of investment funds without a return on the investment. These issues are pretty challenging to boards given the global community at the moment. We are lucky as a country, with $270 billion in committed capital investment. With BHP Billiton given the state of the global community at the moment, not Australia, this would have been a huge risk to the board of BHP Billiton and they are accountable to shareholders. Thanks very much.

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