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Luncheon address to the South Australian Centre for Economic Studies (SACES)

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GS014/2008 03 July 2008

Luncheon Address

South Australian Centre for Economic Studies (SACES)

The Ballroom Hyatt Regency North Terrace, Adelaide

Parliamentary Secretary to be introduced by Jim Hancock, Acting Executive Director SACES


Thank you for the warm introduction Jim, and good afternoon ladies and gentlemen. I am pleased to have been able to join you here today for the release of your 2008 Briefing Report.

While I consider myself a Western Australian, I actually arrived here in South Australia as a ten pound pom in the mid 1960s. My family settled in Whyalla, which was to be our home for the next 13 years.

It still is home for Mum and Dad.

So, I find it easy to think of myself as a South Australian.

Professor Owen Covick, like my family, settled in and made South Australia home.

I found Owen's presentation extremely interesting -- particularly in relation to South Australia's growing exports in the minerals and information technology sectors.

South Australian companies

In preparation for this speech I had a look at South Australian companies over the last twenty years and the growth in their market capitalisation. It creates an interesting picture.

In 1988, the largest South Australian company by market capitalisation was Santos followed by Adelaide Steamship Company, South Australian Brewing Holdings - later to become Southcorp + Southern Farmers Group and Adelaide Brighton Cement Holdings.

In 1998, Southcorp had overtaken Santos followed by Normandy mining and Argo investments.

By 2008, Santos well and truly shot up the listings and is now in the top 25 of Australian companies - but it is the only SA company to make it. Following Santos is Argo, Boart Longyear, Adelaide Brighton and ABB grain.

These rankings point to the interesting ebb and flow of company fortunes in South Australia. When these companies are looked at in light of Australia wide figures, you notice the differences between the states.

As a representative of Western Australia there is a stark difference with Fortescue Metals Group, Woodside and Wesfarmers all appearing in the twenty-five top Australian companies. I again ask you to compare this to South Australia where only Santos has made the same list.

It will be interesting to see if in another ten years there is significant change to these rankings. In my mind, it will be the mining industry which will lead this change.

South Australia's mining industry

At a time when Western Australia and Queensland are enjoying enhanced economic activity,

the substantial contribution made by South Australia's mining industry is often overlooked

for a long time South Australians overlooked it too.

Not only the state's recent contribution but the significant historic place SA has in the story of Australian mining is mostly forgotten.

I recently re-read Don Dunstan's memoir Felecia -mining is rarely mentioned - half a page related to Santos and AGL.

Yet the shipment of 40 boxes of silver-bearing galena from Wheal Gawler - near modern day Glen Osmond - to England in April 1841 marked the first production of metallic ores in Australia.1

Spectacular outcrops of copper carbonates were discovered at Kapunda in 1842. Smelters were erected in 1849 and a refinery in 1861.

The Cornish influence during the formative years of the South Australian Colony was profound. Discovery and development of copper deposits in South Australia was timely since these coincided with the decline of copper and tin mines in Cornwall.

Cornish miners in their thousands were drawn to the new opportunities offered through indentured migration schemes. Thus, mining methods, haulage and processing of ore and pumping of water from the mines were based on Cornish technology.

With the eventual decline of copper mining operations in South Australia, a new discovery of ore was found across the border at Silverton and Broken Hill in 1883.

These mines were brought into production in 1885.

Ores from "The Hill", since discovery, have been transported to Port Pirie - now the site of the world's largest lead smelter and refinery.

This mining activity resulted in an early lead trade with China in 1891.

Iron ore from South Australia's Middleback Ranges led to a resurgence of the State's mining industry. In due course, mine sites at Iron Knob, Radium Hill, Coober Pedy, Leigh Creek and Roxby Downs acquired significance comparable to the great mining districts of the nineteenth century.

Today, what most call the mining boom - which I refer to as our transformed economy - has focused on areas such as the Pilbara in my home state of WA. It is South Australia however, that has produced one of the world's outstanding mineral deposits.

Discovered in 1975 by blindly drilling through young sedimentary covers which concealed mineralisation and into a large magnetic anomaly detected by the Bureau of Mineral Resources, WMC Resources led by the brilliant Arvi Parbo, discovered the copper-uranium-gold-silver resource of Olympic Dam.

In 2006-07, South Australia exported $330 million in minerals which was 3.0 per cent of the state's exports for the year. This was an 80.3 per cent growth on the year before which was $183 million. The largest component of this was $123 million in iron ore exports in 2006-07.

In 2008, there are 30 South Australian minerals projects at advanced exploration or resource assessment stage or projects progressing through pre-feasibility to mining proposal stages.

The existing Challenger and Beverley mines are moving forward with extensions to their operations. The emerging mining projects cover a range of commodities including Copper; Gold; Uranium; Zinc; Iron (Hematite and Magnetite); Mineral Sands and Coal/Coal Gas.

The emerging mineral Sands projects in the far west of the State and uranium and copper-gold projects in the Gawler Craton and Curnamona Provinces will develop into world class mining operations.

Australia's lost opportunities

It is no surprise then that in a recent report by Access Economics for the Mineral Council of Australia, reference is made to the Global "new industrial revolution". The report says that half the population of the world - with India and China leading the charge -- is having an industrial revolution.2

This provides Australia and importantly South Australia, with the opportunity to improve mineral exports.

In Australia we are seeing an economic transformation.

According to IMF calculations, China contributed over one-quarter of global growth last year alone. This now makes China easily the largest contributor to global growth. China's economic growth alone has lifted over 400 million people from poverty.

It is interesting to note that Australia now supplies nearly 40% of China's iron ore imports and there has been significant growth in the sales of energy - our LNG and coal.

According to the Chinese customs agency, Australia supplied 85% of China's imported LNG in 2007.

This modern industrial revolution is commodity hungry.

And although we are arguably the world's best supplier of industrial inputs to our near developing nations,

our miners,


companies and infrastructure

were caught dozing by the swiftness and momentum of the global revolution.

National productivity drives national living standards and mining is one of the few industries where Australia is a global productivity leader.

Given the exploration boom in the north of this state, lets look at some related facts.

Australia has global credentials in the mineral sector. We are:

• the world's largest exporter of black coal, iron ore and gold; • the world's leading producer of bauxite and alumina; • the world's second largest producer of uranium, lead and zinc (that's the Roxby downs effect - one mine so significant - it really should have made a company);

• the world's third largest producer of iron ore, nickel, manganese and gold;

• the world's fourth largest producer of black coal, silver and copper; and • the world's fifth largest producer of aluminium.

Australia's terms of trade are up 40 per cent since 2004, and they are expected to rise by a further 16% in 2008-09.

It is an understatement to say that the minerals industry is in the middle of a major expansion phase. Our economy is transforming.

The Australian Bureau of Agricultural and Resource Economics ABARE reported recently that in the six months to April 2008, 22 major minerals and energy projects, with a total capital expenditure of $11.3 billion, were completed.

Nationally, a further 97 projects are at an advanced stage with projected capital expenditure of $70.5 billion.3

The resource sector's share of the ASX 200 has doubled from 14 per cent in 2001 to 30 per cent today.

While the international situation has resulted in some sectors of the Australian economy slowing, resources remain a strong source of growth accounting for around a third of all new capital spending last year.

All this is very encouraging data but it obscures an uncomfortable truth.

We could have done better.

On too many occasions over the last ten to fifteen years, the story of our natural resource wealth has been one of missed opportunities.

When you think of the effect our robust terms of trade have had on manufacturing it is alarming to think that we may not have optimised our mining growth.

Australia's market share in the top 8 mineral commodities has actually fallen substantially over the last 8 years. Had we maintained our market share at 2002 levels, it is estimated Australia would have earned - at today's prices - close to another $20 billion.

There have been a number of factors holding us back including global problems such as equipment shortages but there are many impediments stemming from domestic policy failures.

Capacity constraints in the form of chronic skills shortages, congested and poorly functioning export corridors, emerging shortages of energy and water, inadequate infrastructure and poorly managed regulatory requirements for land access and use are but some of the factors impinging on our potential growth -

and some poor market intelligence.

We all got it wrong - from boardrooms to the Cabinet table.

We should acknowledge that Companies didn't get it right while policy makers got it wrong - but that is another story for another day.

If left unaddressed, these capacity constraints will dramatically reduce the benefits that the global resources expansion can create for future generations of Australians.

Addressing the constraints

To turn this situation around, and address the infrastructure challenges in water, communications, urban congestion and transport generally, we have appointed Australia's first ever Minister for Infrastructure, Anthony Albanese. Anthony is setting a cracking pace.

He has established Infrastructure Australia or IA - headed up by Sir Rodd Eddington and included among the twelve member board your local, Jim Hallion. Jim, as you know, is CEO of the South Australian Department for Transport, Energy and Infrastructure.

As has been reported in the media, the first task for Infrastructure Australia is to conduct a national audit of potential major infrastructure projects. The states and territories have now passed their information to IA. An Infrastructure Priority List is being developed for consideration by COAG in March 2009.

We have also set up a $20 billion Building Australia Fund to help turn this blueprint into reality by funding shortfalls in critical national infrastructure such as roads, rail ports and broadband capacity.

Transforming the exploration boom here in South Australia -- including the huge expansion at the Olympic Dam copper and uranium mine and a swag of other resource projects - into production and export reality requires a significant investment in transport infrastructure.

Our aim is to deliver on the commitment to speed up the task of nation building and derive real economic benefits from targeted investment in essential transport infrastructure.

Major projects we have committed to in South Australia include nearly a billion to upgrade critical road transport corridors.

These projects demonstrate our desire to improve north south arterial roads through Adelaide, connecting to the Port and developing a new northern gateway for the city to serve the Riverland community and economy.

We are talking with our South Australian counterparts to develop a jointly funded package of specific road and rail infrastructure projects for the five years from July 2009.

Here in South Australia, the Government is investing in a transport sustainability study for Adelaide. The study will analyse urban congestion to 2030 and identify improvements that need to be made to public transport networks, road networks, traffic management, land use and demand management. This will include examining capacity constraints and key intersections, including rail crossings.


Speaking more generally about transport, we are in the process of establishing a truly National Transport Policy. The transport sector is the economic life blood of our nation, supporting our industries and linking families and communities.

At February's Australian Transport Council (ATC) meeting, state and territory transport ministers laid the groundwork for Australia's first truly National Transport policy.

ATC met again at the end of May and Ministers will be meeting in a few weeks' time in July to bed down key regulatory reforms which will underpin a seamless, coordinated national transport system.

We want a national market, breaking down the red tape and lack of consistent regulation that has constrained the industry for decades.

This policy is an important step on the road to modernising our centuryold federation.


We are also looking closely at how best to meet the challenges facing Australia's coastal freight task.

Here in South Australia, Flinders ports operates seven ports with ships carrying exports including agricultural commodities, motor vehicle parts, minerals, petroleum products - and, of course those famous South Australian wines.

In fact, as you no doubt know, wine and minerals account for more than 40 per cent of the states' exports.

Total exports through Port Adelaide in the 2006-7 total $8.3 billion which puts it seventh in the ladder of Australia's top 10 ports.4


The labour shortage is evident throughout the country and is having a major impact on a variety of industries. We also need to prepare now for the eventual retirement of the baby boomer generation. Over the period 2010 to 2020 more people will retire than will join the workforce.

In 2007 there were 600,000 more people aged 15 - 24 years than people aged 55 - 64 years in the population.

By 2017 this situation will have reversed and there will be 84,000 more people aged 55 - 64 years than people aged 15 - 24.

The reality is that Australia's population growth is shaping up to be a serious capacity constraint on our economic growth. We need a debate about these long-term demographic shifts and the implications for our future prosperity.

A large permanent migration program is essential to tackling the impending deficit of skilled workers over the coming decades.

For the first time this year the Budget explicitly recognized the positive financial impact our migration program has on the economy.

The Budget Paper shows the migration program delivering a positive impact, as a result of the majority of migrants quickly moving into employment.

However, the Government recognizes the need to ensure that the migration program delivers the skills the economy needs and people into the areas of critical need.


I have covered a fair bit territory here today, but I have really only scratched the surface of the Rudd Government's agenda in the areas of Infrastructure, transport, regional development and immigration.

I apologise for not being able to go into detail about the full range of initiatives, but that would probably take us through to dinner. However, we have I believe, around 20 minutes for questions and I am only to happy to provide more detail on any of these issues - or indeed to clarify anything I have spoken about today.

Thank you.

1 Johns, K., Mineral exploration and development in SA: 1836-1991, SADME (South Australia Department of Minerals and Energy)

2 Global commodity demand scenarios: Report by Access Economics for the Mineral Council of Australia, May 2008. pp i-v.

3 ABARE, Australian commodities: June quarter 08,

4 Bureau of Infrastructure, Transport and Regional Economics, Australian transport statistics, June 2008