Rio rings cost warning bell

North Queensland Register (Townsville), Townsville

10 May 2012

RIO Tinto CEO Tom Albanese’s claim that capital costs in the coal-mining sector have risen 50 percent over the past four years rings serious alarm bells for the Australian economy.

Jobs and investment will move overseas if the government doesn’t seriously address industry-wide cost inflation in the resources sector, according to John Shipp, director of the Institute of Public Affairs North Australia Project.

Responding to a report in the Australian Financial Review, Mr Shipp said: “If one of Australia’s largest mining companies is abandoning projects, the Australian economy will undoubtedly suffer.

“Mining companies won’t continue to expand or initiate projects in Australia if they can go to places with lower wages, lower capital costs, and governments that welcome investment, risk-taking and job creation.”

Rio Tinto has signalled that labour costs, along with a weaker outlook for commodities and growing uncertainty over demand from China. may force it to RIO chief Tom Albanese reconsider several projects. It is estimated that the Mt Pleasant project in the NSW Hunter Valley, which is now under serious threat and unlikely to go ahead, would employ about 350 people and produce 10.5 million tonnes of thermal coal a year.

Soaring wages, in particular, have meant that many planned coal-mining projects in Australia are no longer viable. According to Rio Tinto, a truck driver on one of its projects in the Hunter Valley now earns more than someone in a similar position on an iron ore mine in the Pilbara.

“Tuesday’s federal budget may be the final straw for many coal-mining companies and many of their projects.

“The mining industry has become an easy target for a government determined to get a surplus at all costs.”

Rio Tinto said if the Gillard Government continued to implement policies which sucked the life out of the mining industry, the future for coal mining in Australia would begin to look even bleaker.

“The only thing companies like Rio Tinto will be extracting from Australian soil is their capital, so that they can set up projects in Africa and South America.” Mr Shipp said.

“The government needs to recognise how fragile the mining boom is and that if the resources sector slumps, so will the economy.”