Review of resources industry activity

Review of mineral and petroleum industry activity indicators 2016

WA Mining employement graph

Employment

In 2016, the number of people directly employed in the mining sector was 104,803.  Employment numbers have trended downwards since its peak in 2013 with 111,293. However direct employment remains high relative to just ten years ago when the average number of people employed was 59,125 (this is an increase of over 77 per cent).

The number of people employed in the petroleum sector was down 36 per cent to 1,103 in 2016 from 1,734 in 2015. These figures only include employment in onshore facilities and pipelines covered under the Petroleum Pipelines Act 1969, Petroleum (Submerged Lands) Act 1982 and Petroleum Geothermal Energy Resources Act 1967.

Mineral and petroleum employment is reported separately as it is collected under separate legislation. Petroleum employment statistics are also complicated by the fact that responsibility is split between State and Federal Governments depending on whether the project is onshore or offshore.

Mining FTE versus Total mining individuals graph

DMP also reports employment data in two ways:

  1. Full Time Equivalent (FTE): FTE figures are reported for comparison to other industries.  The number reported is based on the total hours worked by a mining employee divided by a standard working week of 40 hours.
  2. Total Number of Individuals (NoI): The number of individual people who have performed at least one hour’s work on a mine site or for a mining company. This is the number reported above and is the most reflective of mining employment activity.

In a typical industry, it can be expected that the average number of individuals be higher than the number of FTEs because a part-time employee is counted as one in NoI figures, but only as a fraction of one for FTE purposes.

The below graph shows both mining related NoI and FTE data from 2006 to 2016.  It tells us that the mining industry is not typical in terms of the NoI/FTE numbers and that during some periods, FTE numbers are actually higher than the NoI numbers.  Historically, this has been attributed to the relatively low proportion of part-time workers and individuals working hours greater than the equivalent of one FTE

In the past, mining employment FTE and NoI figures have been fairly close, with the average disparity rarely exceeding five percent from 2001 to 2012.

However, this changed markedly in 2013, when the number of FTEs began to decline relative to NoIs.  This reflected the rise in contractor and consultant-based work among mining professionals as companies cut costs in response to declining commodity prices.

Western Australia's share of Asutralian mining investment

Investment activity

Western Australia’s share of national mining investment has averaged around 59 per cent for the last ten years, peaking in 2015 at 65 per cent.  However on the back of the global downturn in commodity prices, spending has reduced considerably in the last three years.  In 2016 almost $27 billion was invested in WA compared with $51 billion in 20121.

In monitoring investment activity in Western Australia, DMP also collects information on mineral and petroleum projects to estimate actual and possible investment.  Where possible, information is collated relating to expected capital expenditure, project timing and employment during both the construction and operation phases.

Mineral and petroleum projects are categorised as follows:

  • Projects under construction - those actually under construction.
  • Committed projects - company has reached a  final investment decision (FID)
  • Planned projects - those undergoing advanced feasibility studies including definitive and bankable feasibility studies and Front End Engineering and Design (FEED).
  • Possible Projects - comprise those raising capital but not yet conducting definitive and bankable feasibility studies.

[1]It is important to note that the figures reported above by the ABS do not capture all mining investment. The ABS uses classifications specified in the 2006 edition of the Australian and New Zealand Standard Industrial Classification (ANZSIC) (ABS catalogue number 1292.0). Accordingly, mining is broadly defined as the extraction of minerals occurring naturally as solids such as coal and ores, liquids such as crude petroleum and natural gas. Downstream mining activities such as smelting of minerals or ores (other than preliminary smelting of gold) or refining are classified as manufacturing activities under the ANZSIC. Products such as coke and alumina are also included in the ANZSIC manufacturing category.

Western Australia had an estimated $101 billion worth of resource projects under construction or in the committed stage of development.

As of March 2017, Western Australia had an estimated $101 billion worth of resource projects under construction or in the committed stage of development.

Since September 2016, new projects have included:

  • Dacian’s Mt Morgans Gold project ($220m)
  • Tianqi Lithium’s Lithium Processing Plant ($400m)
  • Atlas Iron’s Corunna Downs project ($53m)
  • Woodside’s Persephone-1 gas project ($1.2bn)
  • DBP Group’s new Gas Storage Facility in Onslow ($69m).

A total of $52 billion has been identified as planned or possible projects in coming years.  This represents an increase of 12 per cent since September 2016, largely due to new mining projects in their early consideration stage, including BHP Yandi South Flank ($3.5bn), FMG’s Eliwana and Nyidinghu projects ($2bn), and Rio Tinto’s Koodaideri project ($3bn).

Exploration activity

Exploration expenditure and drilling activity is another indicator of the health of the minerals and petroleum industry. DMP currently reports data collected by the ABS around exploration expenditure, exploration by commodity and the location of drilling activity, i.e. whether it is occurring at new or existing deposits.

In 2016, Western Australia accounted for 65 per cent ($928 million) of Australia’s total mineral exploration expenditure ($1.4 billion).  This was up from 2015 which attracted a $844 million dollar spend.

Western Australia has attracted the largest share of expenditure consistently over the past ten years.  Again, nation-wide spending has decreased significantly over the last few years dropping from $3.6 billion in 2012, and although expenditure in WA has decreased, it has done so at a much slower pace than the rest of Australia. In fact this year saw an increase in mineral exploration expenditure in WA versus a small decline in overall spending.

National petroleum exploration expenditure has declined by around 70 per cent since its peak from $4.7 billion in 2014 to just $1.4 billion in 2016.  Over that same period petroleum exploration spending in Western Australia has declined by around 63 per cent from $2.8 billion to $996 million.

total Western Australian exploration expenditure on two key commodities and the State’s share of national spend
Graphs indicate the total Western Australian exploration expenditure on two key commodities and the State’s share of national spend.
Western australias share of australias petroleum exploration expenditure
Revenue growth 2015 to 2016 bar chart

Royalties

DMP collects royalties for all minerals and petroleum produced on State land and in State waters.  The royalties collected make a significant financial contribution to the State Budget with all revenue received paid into the State’s consolidated revenue fund.

In addition, the State receives a share of royalty payments made to the Commonwealth Government for projects located in the North West Shelf.  The share is in the form of a grant and is identified separately to royalty receipts.

In 2016, a total of $4.7 billion was received, a decline of just over eight per cent ($436 million) on 2015.  Almost all commodities returned less in royalties with the largest percentage decline to petroleum receipts which fell almost 62 per cent from just under $9 million in 2015 to $5.5 million in 2016. However the biggest impact monetary wise was the iron ore sector, which fell by just under six per cent but reflects a loss of revenue of almost $221 million.

North West Shelf grants were down almost 24 per cent ($176 million) to $567 million in 2016.

It should be noted that royalty receipts are reported for the four quarters to September i.e. December 2015, March 2016, June 2016 and September 2016.  This means that the variance between the 2015 and 2016 royalty receipts will not necessarily correspond to the reported variance in commodity values.  For example in 2016 royalty receipts for iron have decreased whereas the sales value for iron ore has increased.  This difference is largely due to the significant upswing in the iron ore market that occurred in the December 2016 quarter.  This upswing is reflected in the iron ore sales value figures, but not the royalty receipts data.

 

For an overview of the performance of Western Australia’s major commodities view DMP’s Mineral and Industry Overview 2016.