Australia has to remain competitive: Rio

RIO Tinto Australia managing director David Peever says the current downturn is a good opportunity to tackle some of the challenges Australia’s mining industry faces.
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Rio Tinto Australian managing director David Peever.

Kristie Batten

In an address to the Bureau of Resources and Energy Economics Minerals and Energy Outlook, Peever said a good start would be even acknowledging Australia had a productivity and competition problem.

“It might also help if we dispensed with a few myths along the way, for example, the one about the mining industry not paying its fair share,” he said.

“Last financial year, Rio Tinto was Australia's top corporate taxpayer and proudly so.”

Peever said the Port Jackson Partners report for the Minerals Council of Australia released this week should be essential reading for policymakers and areas to focus on were skilled labour, industrial relations, regulation and approvals, innovation, infrastructure capacity and taxes and royalties.

“None of this stuff should be beyond us,” he said.

“The PJP report draws attention to plenty of examples of the things our competitors around the world are doing to improve their own productivity and competitiveness.”

He singled out Canada’s approvals regime which had legally binding timelines and Brazil’s 20-year strategic plan for its minerals industry.

“A comprehensive solution to the cost pressures currently facing the industry in this country can only be reached through an honest appraisal of the causes from all perspectives,” Peever said.

“To that end, we in the industry also need to apply some introspection to identify where we can do things differently.”

Peever called for a coordinated effort to identify the causes of productivity drops in the resources sector.

“The national government should lead on this but it won't work unless the industry is very closely involved and the states are on board as well,” he said.

“If there was ever a case for a dose of cooperative federalism in the national interest, this may well be it.”

Meanwhile, Peever said the boom was not over but the dynamics had changed from the past eight years where iron ore production and prices had more than doubled.

“A market always corrects – new suppliers emerge to corner their share, old competitors lift their performance, demand is cyclical, prices must eventually subside,” he said.

“We are seeing this right now. The price growth that underwrote both our industry's profits and very large government revenues in the last decade has disappeared.”

Peever said the only way for Australia to keep its market share was to increase production while lowering costs.

“If this comes as a revelation to some policymakers – and based on recent history I suspect that it may – I can assure you that it comes as absolutely no surprise to most people in the mining industry,” he said.

“Suffice to say that I do think that a longer term view of the industry and an appreciation of the critical importance of maintaining competitiveness has been sadly lacking in some of the policy debates we have seen over recent years.”

Rising costs were undermining the industry’s ability to deliver new projects and keep existing projects afloat, Peever said.

“For some time we have been experiencing the 'sawtooth economy’ – a point where decisive action is now urgently needed from both industry and government to restore our competitive advantage,” he said.

“Let's be very clear. Australia now has serious competitors across a number of commodities where we previously held an edge.

“We have new competitors. And we have better competitors. We compete not only for market share but for scarce capital.”

Peever pointed out that thermal coal costs alone were two-thirds higher in Australia than in other countries, while Indonesian bauxite mines were more competitive than Australia’s struggling alumina industry.

“More than half of Australia's mines working in highly competitive markets for copper and nickel have costs above global averages,” he said.

“Again, apart from existing mines in the Pilbara, new projects will struggle to get iron ore into China against our overseas rivals.”

New competitors, such as Mongolia, Mozambique and Chile, were hungrier for resource investment, according to Peever.

“These new competitors are strengthened by improved policy settings, new technologies and new sources of capital,” he said.

“Many have learnt first-hand from the experiences here in Australia.”

Peever said it wasn’t too late for Australia to regain its edge.

“If we act to fix the problems then the resources sector will continue to deliver tremendous benefits for a very long time,” he said.

“But without decisive action to restore Australia's competitiveness, a once in a century opportunity may be permanently wasted.”