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Queensland Exploration Breakfast

The Hilton Hotel Brisbane

31 October 2014

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Good morning and I want to thank you for the opportunity to speak to you this morning on behalf of the Minister for Industry, Ian Macfarlane. The Minister is unable to be here today and has asked me to pass on his apologies.

I’d like to acknowledge Queensland Minister for Natural Resources and Mines Andrew Cripps, and the exceptional work he is doing to reduce red tape for the mining industry in Queensland.

The Queensland extractives sector has a remarkable history in this state over more than a hundred years and has helped make Queensland the economic powerhouse it is today. A good deal of the advocacy on behalf of the sector has been undertaken by the Queensland Resources Council and before it the Queensland Mining Council. This forum presents an important opportunity for advocates, industry and policymakers to come together—and I can assure you the advocacy started early this morning. But it is welcome—and it is needed.

Ladies and gentlemen, we are here today because we have a shared understanding of the importance of mining to Queensland’s economy. And we appreciate the contribution the mining sector makes to our national prosperity.
Mining has been a great blessing to Australia. It provides jobs to support the livelihood of Australians and their families. Some 237,000 Australian workers are currently employed in the mining sector. It also provides significant revenue to build and maintain our roads, schools and hospitals.  And many small businesses depend on this vital industry for their survival and to keep employing people.

It is indeed true to say that Australia’s mining sector has done most of the heavy lifting in our economy over the past decade.  Mining’s share of GDP has grown steadily over the last few decades, increasing from around 6 per cent of GDP in the early 1980s to around 11 per cent in 2013–14.  In the past financial year alone, the sector contributed more than $163 billion into Australia’s economy. The mining operations workforce has nearly tripled in the past decade.

No matter how you look at it, you cannot separate Australia’s economic prosperity from its mining sector, that is why we want to maintain the right environment for the sector to continue to grow.  It’s why we’ve abolished the mining tax and the carbon tax to restore Australia’s attractiveness as a preferred investment destination. That is why we’ve embarked on a deregulation agenda to cut red tape and reduce the burden of paperwork and delays to major projects.

I acknowledge the challenges facing your industry, both in this state and indeed around Australia. Falling commodity prices, rising project costs, low productivity, among others.  I know small miners in particular are under enormous pressure, especially those in the iron ore and coal sectors, and this pressure will increase as commodity supply increases and prices fall.  Australia is not alone. High-cost producers around the world are feeling the pinch.

There are significant opportunities in spite of the challenges. Strong demand, along with cost-cutting efforts and productivity improvement measures across the industry, will provide strong returns for companies in the long term.Australia is now making the transition from the investment phase of the mining boom to the production phase.  Export volumes from increased production are forecast to continue to grow and the benefits from increased production will deliver benefits for Australians for many years to come.

In fact, mining continues to be the largest contributor to Australia’s economy, accounting for the biggest share of GDP—10.7 per cent—in the June quarter.

But Australia will need to keep lifting its outputs in order to continue to capture the benefits to the economy as commodity prices fall. The fact is, while commodity prices have come off their peak, they are still high in historical terms. Projects completed over the past several years have laid the foundation for strong growth in production and exports over the medium term and beyond. In the past year alone, we’ve seen large increases in production capacity, including 215 million tonnes of iron ore and 43 million tonnes of coal.

World demand for commodities remains strong, even with slower growth from emerging economies. Australia has vast mineral and petroleum reserves and potential, and there are opportunities still on offer from further investment and targeted exploration.

The recent opening of the $3.9 billion Caval Ridge Mine by the Prime Minister in Central Queensland demonstrates the potential for future investment. This joint venture between BHP and Mitsubishi will produce some 5.5 million tonnes of metallurgical coal every year and create jobs for some 500 Australians.

I know your concerns over the Chinese Government’s introduction of tariffs on coal imports from 15 October. In our FTA negotiations with China, we are seeking elimination of tariffs for Australian coal exports. This underlines the importance of concluding Free Trade Agreements to shore-up our competitive position. It is important to note that there will always be a strong place in the market – strong demand – for Australian high-grade, lower emission coal. Australian coal is recognised internationally for its high quality.

Companies in our part of the world are also experiencing the cost pressures of a low coal price and fixed rail contracts. Speaking of low coal prices and fixed rail contracts, I believe there is mutual benefit in coal producers and infrastructure providers finding a way through the current circumstances.

The Government cannot directly influence project management and associated costs and, generally, the cost of operating a business. What it can do is to create the right policy setting and incentives for investment growth, business success and putting downward pressure on business costs. In addition to abolishing the carbon tax and mining tax, we are reducing and removing red tape. This is essential if we want to improve Australia’s productivity. Our commitment is to cut unnecessary regulation and paperwork by $1 billion every year.

As part of our one-stop shop plan, we have been working with the states and territories on a parallel approvals process, which would reduce the time and complexity of environmental approvals .I know that environmental approvals are of great interest to you. Particularly the role of FIFO activists who use ‘lawfare’ as a means to slow project development to a crawl or kill a project altogether and reduce Australia’s overall investment attractiveness. An enormous step forward in this regard is the Mineral and Energy Resources (Common Provisions) Act 2014.

It would be remiss not to mention Andrew Cripps’ work just last month to reduce vexatious and philosophical objections to resource projects. If you are going to object to a project in your backyard, it is only right that the backyard actually be yours. This legislation aligns with our one-stop shop proposal which we put before parliament and sought to make the process for project approval simpler, cheaper and faster. Unfortunately, the Senate has rejected one-stop shops, but the Government will continue to work to reduce growth-killing regulation.

Our science agencies are also working with industry and the states to cut duplication in pre-competitive data collection and coordination, improve efficiency and reduce business costs. The acquisition of pre-competitive data, its interpretation and integration with existing data sets by Geoscience Australia can help reduce the upfront costs for new entrants to the industry and stimulate investment in exploration.

The Government’s National Industry, Innovation and Competitiveness Agenda will also seek to achieve a lower cost, business-friendly environment, including reducing regulatory restrictions. Under this agenda, mining equipment, technology and services is one of five Industry Growth Centres to be established. These centres will create a platform for collaboration between research and business towards achieving global excellence in industry areas where Australia has competitive strength.

There’s no doubt about Australia’s vast mineral reserves, but we will have to do everything we can to encourage exploration. We will need to work harder to create the next generation of super projects. Super projects tend to start small, especially in Australia where large companies have shown a clear preference for brownfields development over greenfields development, and its precursor, exploration.

We know from our consultations with companies across Australia that it is difficult for small exploration companies to make ends meet and reward their investors. In response to this need, we have developed the Exploration Development Incentive. Exploration for new mineral discoveries is at a 10-year low and costs for exploration have risen dramatically. The average cost per metre drilled has doubled in real terms since the late 1990s. It’s no wonder that on recent trends 2013–14 is expected to represent the lowest level of greenfields metres drilled in the last decade.

The cornerstone, though, of a more economically viable exploration sector is the Exploration Development Incentive.

The EDI delivers on our commitment to boost exploration for new mineral deposits by encouraging investment in small companies undertaking greenfields mineral exploration in Australia. It addresses the challenges juniors face by facilitating their access to capital from private sector investors by way of a refundable tax offset.Companies with assessable income can claim exploration expenses already.

Where the EDI differs from existing programs is that it allows small mineral exploration companies without an income to pass on eligible exploration deductions to their shareholders via a refundable tax offset, helping them raise capital to explore for new mineral deposits.

The EDI is targeted at exploration for onshore minerals and will apply to exploration for all mineral commodities—except quarry materials— providing the exploration is undertaken by an eligible company, that is, companies with no taxable income.

The EDI commenced for investments made from 1 July 2014. The scheme will be capped at $100 million over the forward estimates.

To ensure the cap is not breached, the Australian Taxation Office will determine a proportion of expenses that can be claimed as tax credits by shareholders. The scheme will be reviewed in 2016 and subject to the outcome, may be extended for a further period. It is our hope that its success compels that it be continued, which is up to the explorers.

To find the next generation of deposits the work needs to be undertaken now, and the drilling has to go deeper. When we say “Australia is underexplored”, many are shocked. “But you have so many mines” is the usual response. And we do—our exploration has been wide, but it needs now to be deep.

Based on the expert advice of agencies like Geoscience Australia, we have every reason to believe these ‘undercover’ areas will be resource rich. But discovering them, developing them and exploiting their potential is easier said than done. The challenge ahead is to explore what lies deeper in the ground – beneath the weathered rock and sedimentary basins that cover 80 per cent of the continent. We have every reason to believe these ‘undercover’ areas will be resource rich. But developing them and unlocking their potential will be no minor task.

The success and scale of Olympic Dam mine in South Australia shows the potential on offer. And the development of the Coiled Tubing Drill Rig prototype by the Deep Exploration Technologies Cooperative Research Centre will enable more cost-effective methods of exploration.

We need a strong junior sector. That’s why the government is implementing the Productivity Commission report recommendations to reduce non-financial barriers to exploration for industry. A large component of the Government’s response is encouraging efficient and effective regulation, and providing more information to the industry so that better decisions can be made.

There are 22 recommendations in the PC review and they are all being implemented, and I would like to take this opportunity to thank the states and Northern Territory governments for their support.I do not want to go through a laundry list of the recommendations, but I would like you to appreciate their scope and consider how they will benefit the industry.

We know about increased coordination of exploration approvals across the environmental and heritage frameworks. But regulatory processes will also be streamlined to ensure that requirements are the minimum necessary to achieve policy objectives and proportionate to the risks involved. It’s about simplifying to get the same outcomes—simple efficiencies.

We are working to increase the transparency and accessibility of the exploration process, including by:

  • improving access to information for applicants and stakeholders, including through the establishment of a single web platform
  • publishing reasons for decisions on exploration licences to applicants on the web
  • setting and publishing target timeframes for decision making processes, and
  • providing landholders with advice on their entitlements.

We are also working to create a marketplace for access to information by:

  • maintaining registers of indigenous heritage sites and heritage surveys
  • publishing information used by regulators in environmental decision-making processes, where this is not commercially sensitive, and
  • requiring disclosure of resource discoveries.

I would like to conclude by thanking you again for the opportunity to speak to you this morning. The Australian Government understands that the minerals industry is going through challenges. I know some of you will have to make difficult decisions over the coming year, but there are opportunities for us to work together to create a better operating environment for mining businesses. Policy decisions that encourage good business practice, reduce cost and promote investment will make your life easier. And that is the work the Australian Government is doing, with a focus on minimising interventions, reducing red tape, and creating the macro-economic settings to improve investor confidence.

Thank you.

Media contact: Mr Baldwin's office 02 6277 4200