Managing the Resources Boom

ACTU Investment Forum 201117 June 2011

Andrew VickersGeneral SecretaryCFMEU Mining & Energy

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OverviewThe scale of the boom – a quick recap

Profitability

Labour demand forecastsThe massive turnover problem

The Resource Curse?

Major hazards for investors

Do the MRRT and CPRS Mk II really matter?

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The project pipeline

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Advanced Less advanced Total

No. $m No. $m No. $m

Energy 35 115,953 112 148,285 147 264,238

Minerals 35 33,393 147 64,493 182 97,886

Infrastructure 20 19,014 34 34,447 54 53,461

Processing 4 4,977 12 9,126 16 14,103

Total 94 173,537 305 256,351 399 429,888

Capital investment

5ABARES (2011) Minerals and Energy – Major development projects April 2011 listing

ProfitabilityABS 8155: Australian mining has profit margin of

33.4% and $1.06m value-added per job – highest of any industry.

PricewaterhouseCoopers 2010 - global mining survey:US$435 billion income – up from $325b in 2009Net profit US$110 billionEBITDA margin 43%Net profit margin – 25%

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Labour demand - mining

NILS study for MCA 2008:2010 – 155,0002015 – 186,0002020 – 215,000

NRSET 2010 study:2008 – 154,0002015 – 216,000

Each new study has higher forecasts!

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Labour demand - resources construction

8NRSET (2010)

The turnover problem Long hours, FIFO and social isolation produce high

turnover

9The Australia Institute (2011): How many jobs is 23,510 really?

The Resource Curse?High labour turnover in mining may mean that

some workers flow back to other industries

But the high A$ is decimating the non-mining export industries – manufacturing, tourism

Significant evidence that flow-on benefits from mining construction are mostly off-shore

we’re better off than the EU or the USA, but we need sustainable long term benefits from mining eg via a SWF

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Investors beware?Importing large numbers of temporary migrant

workers for resources construction is not a quick fix

The Enterprise Migration Agreements for mega projects ($2 billion +) will probably be abused

A current trickle of cases of illegal underpayment of wages, sub-standard conditions and OHS problems

Will become a flood? Catastrophic incidents? Major litigation, project cost blowouts and insolvency?

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MRRT and CPRS Mk IIAcceleration in ABARES major project listing

shows that MRRT and CPRS Mark II are minor imposts on the industry

We think the original RSPT was better but the MRRT is a start on better community returns from a high profit industry

The CPRS Mk II will barely affect most resources. Aluminium, steel and certain gassy coal mines need assistance and should get it.

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ConclusionWe aren’t really managing the resources boom

It helped saved us from the GFC but, in the absence of a strong MRRT and SWF we aren’t managing mining wealth for the long term

High labour turnover is the result of extreme rosters, social isolation and heavy-handed management unrestrained by any workforce collective voice (outside of coal mining)

Large scale importation of temporary workers is probably an impending train wreck.

We should take the Resource Curse threat seriously 13